I am divorced with 2 kids. My mom wants to setup a college savings account of some type for my older kid. Last time she did this, she used my kid's SSN and deposited some money. I do not know what type of account this was (529 or some other type). But the intent is to have the money available for my kid when he turns 18.

Somehow, my ex-wife was able to tap into it and withdrew all the money.
So this time around, I'd like to make sure that account cannot be tapped into by anyone. And assurances of a pimply-faced teen at the bank just isn't enough.

So, questions:

  1. How can I create an account that is untouchable?
  2. What type of account (e.g. 529?) should I setup?
  • You might want to look into a custodial 529 but TBH I'd try to figure out the "ex being able to empty the account" part first if she wasn't supposed to be able to access it. – Timo Geusch Dec 28 '12 at 23:34
  • Did the 529 account exist prior to the divorce? If so, how was it handled in the asset allocation in the divorce papers? I suspect you won't have this issue if you do it post the finalization of the divorce if you are the named account owner. – JohnFx Dec 29 '12 at 0:08
  • @JohnFx Yes, the account was setup prior to our divorce. It was never mentioned in the asset allocation, because nominally it was created by my mom and owned by my son (if that is the correct nomenclature). Btw, I don't know specificaly (simply don't remember) that it was a 529 account. – NeedAdvice Dec 29 '12 at 0:59

A 529 has a custodian and beneficiary. If, say, my Mom is custodian and my daughter the beneficiary, neither my daughter, my wife, nor I can access this account. In fact, if my daughter chooses not to attend college, Mom can change beneficiaries. So, a 529 is ideal for what you have described.

By the way, your wife may have broken the law. Money in your child's name/SSN cannot simply be taken from the account at a parent's whim. You have every right to ask for an accounting of that money and insist she return it to your child's account.

Edit - I was going to add that UTMA money may only be spent for the benefit of the child, and not for day to day items, food, clothing, etc. The article The proper use of UTMA funds provides a bit of support to my position on that.

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  • 2
    Good answer, but one note (with which I now have some direct experience). 529s with a custodian other than the parent are treated very differently by the FAFSA. If the parent is custodian, it is treated as a parental asset for the purposes of figuring aid. Otherwise, all distributions are considered untaxed income which can increase the Expected Family Contribution significantly in subsequent years. If it's not an issue for your Mom, have her gift you the money (in installments at the annual gifting limit if it's a large amount) and set up the 529 yourself. – Rick Goldstein May 28 '13 at 2:54

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