Saving for Education in Blended Families

Millions of Americans live in blended families, but bringing families together means combining two sets of finances and raises questions about how to save for the children’s education. According to a 2015 Pew Research report, 16% of American children live in blended families. If you’re navigating these waters, here are a few steps you can take to ease the burden of planning for current and future educational expenses.
 
Talk About Money with Your New Partner
The first step to saving for education is to get on the same page with your significant other. Ideally, you’ll have conversations about money and create a financial roadmap for your blended family before you get married. But if you haven’t yet taken that step, it’s never too late to start!
 
These discussions are important because second marriages often bring together people who have varied experiences with—and philosophies on—spending, saving, investing and managing money. Don’t assume the dynamic will be the same with your new partner as it was with your previous spouse.
 
“All those things get mixed into a blender and now you have little ones that depend on it and they’re from different backgrounds,” says Lili Vasileff, a certified financial planner and founder of Divorce and Money Matters in Greenwich, CT.
 
You and your new spouse may be able to work your finances out on your own. But it can also help to bring in a neutral person like a financial advisor or mediator. This person can help you decide whether to merge your finances, identify money milestones, set expectations with your children and make a list of guidelines for contributions to college savings accounts.
 
Create A Plan for College Savings
There are a number of ways to save for your educational expenses, including 529 plans and Coverdell education savings accounts (ESAs). Both allow you to set aside funds that are exempt from federal income taxes if used for tuition and other qualified expenses. Some parents also use other tax-advantaged savings vehicles like Roth IRAs. You can also save in high yield savings accounts, where you can save post-tax dollars and still receive a return on your savings.
 
If you and your previous spouse already set aside money for your children’s secondary or higher education, ideally the fate of these accounts—including beneficiaries and contributions—was decided during your divorce judgment. Either way, you’ll want to work out how you’ll continue to pay in going forward and how (or whether) your new partner factors into the savings plan.
 
For example, will you contribute equally or based on income? Who receives account statements and has the ability to make changes or withdraw? Do you plan to help save for your stepchildren’s schooling?
 
Keep in mind: If a child doesn’t use their 529 plan, you can roll it over to another beneficiary within the same family. However, stepparents cannot access a stepchild’s account unless power of attorney is granted to them.
 
Think Ahead About Financial Aid
College financial aid is another important consideration for blended families. If you are the custodial parent—meaning your child has lived with you for the majority of the past year or you’ve provided more financial support during that time—you’re responsible for filling out federal student aid forms (commonly known as FAFSA). The FAFSA also requires information, including financial circumstances, about stepparents.
 
This means that your child’s aid opportunities are tied to your assets—and your partner’s. Depending on your financial situation, your kid might qualify for significantly more or less support than if they relied primarily on their other parent.
 
Set Expectations for and with Children
There is no single answer for how to divvy up funds among children in a blended family. You’ll aim to treat all of your kids equally, but age differences, school preferences and variable financial contributions from each parent can make this difficult.
 
For example, one of your children may choose not to go to college and ask to use the funds that you set aside for their higher education to travel. Or maybe your new spouse has teenagers who are prepping for college while you have toddlers. Or you have another child together and don’t agree on public versus private school.
 
Prepare for potentially tricky situations by having frank conversations with your partner. Then communicate expectations to your children—and stick to them. It’s also important to set your financial priorities, including how you want to handle taking out loans versus paying out of pocket for education costs.
 
“Knowing what your budget can support and how you want to spend your money can be two very different things,” says Joyce Streithorst, director of financial planning at Frisch Financial Group in Melville, NY.
 
“College expenses can be very large and different family members can have very different views on how much they want to pay, the level of debt the student should incur, even the initial choice of the college,” she adds.
 
Vasileff recommends communicating openly with your new partner, your ex-spouse and even grandparents who might be involved in paying for education.
 
The bottom line: saving for education in a blended family comes with unique (and perhaps unexpected) challenges. But having a clear plan can help you better manage those bumps as they come, and provide your children with the best possible opportunities.
 
Emily Long is a freelance writer and editor based in Salt Lake City, UT. Her work has appeared on NBC News, Lifehacker and Wirecutter.
 
Photograph by Gregory Reid/Gallery Stock.
 
Read 5 ways to tackle soaring college costs.