The benefits of having a separate 529 plan for each child

When looking ahead to their children’s college education, your clients may ask you whether they should have multiple family members on a single 529 savings plan or create a separate account for each child. Although there are ways that one plan could be used for more than one beneficiary, it is possible to set up and maintain a separate account for each child. Below are some reasons your clients should consider opening a separate account for each child. 

Each child deserves the opportunity for equal funding and certainty

The idea of setting up one 529 savings plan per household may sound appealing on the surface, but there are a few shortcomings to this approach. 

One is psychological: Having to share college funds with siblings could result in less buy-in, or “ownership,” from each child. With an individual plan, each child can benefit from knowing that there is a special account created just to fund their dreams and aspirations. They may be even more motivated to focus on their goals. 

Another is practical: In a “one-plan” scenario, the first child uses 529 plan funds for their educational expenses and then leaves the remainder for subsequent children. But when all the costs of attending college are tallied, there may not be any funds left over to pass on to a second beneficiary. 

Separate accounts can focus on different investing strategies for each plan

There are many investment strategies when creating 529 plans, as investors can take advantage of age-based portfolio strategies. If an investor opens a separate 529 account for each child, they can make more aggressive investments with higher growth potential during each beneficiary’s early childhood years. But if a younger sibling is lumped into an older child’s plan, then investments can’t be tailored as precisely for multiple time horizons. 

529s can help children plan for their future

Each child is different from one another — and so are their needs, dreams, and desires. A university education may be right for one student, while another may prefer a trade or technical school. Fortunately, the funds from a 529 account can be applied toward any, and all, of these uses. 

Whatever path a child may choose, 529 plans offer plenty of great options for helping to fund it. Account owners should be encouraged to have regular, open, and honest conversations with their beneficiaries to help them learn to plan ahead and try to create interesting, practical financial learning experiences. 

When changing the beneficiary of a 529 plan can be a smart choice

One major benefit of 529 plans is their flexibility, as beneficiaries can be changed easily. Here are some situations in which a change may make sense: 

• Scenario 1: The first beneficiary has made full use of the funds available in the 529 plan to pay for their educational needs. Although another sibling could already be an assigned beneficiary of a separate 529 account, the second sibling could benefit from both accounts. This flexibility is a key advantage of using 529 plans.
• Scenario 2: The first beneficiary simply decides not to attend college or to use the funds for another qualified expense.
• Scenario 3: The first beneficiary decides to take time off from school. When the child returns to school, the beneficiary could be changed back to the original child. 

Closing thoughts 

Overall, there are many reasons why separate 529 plans make sense for families with multiple children. But it’s important to remember that starting early, staying flexible as situations change, and maintaining clear communication throughout the process are crucial parts of any successful 529 savings plan experience. 

Browse our FAQs page to get answers to common questions your clients might have on 529 plans.