College: One Plan or Two?

By Gary Silverman, CFP®

College starts back up this month. If you are a parent of a younger than college age child, ask parents who are writing out tuition checks when you should start saving for college. A likely response is, “at conception.” They are not joking.

One of the options for your college savings is a 529 College Savings Plan. Think of it like a Roth IRA for college expenses. Put after-tax money in and, if used for qualified college expenses, you get to cash out without owing any taxes. We’ve covered this in the past, so I won’t go into much more detail here, other than to direct you to SavingForCollege.com if you want to deep-dive into these plans.

Today I want to discuss whether, if using a 529 Plan, you should have one account for all your children or a separate account for each (if you have only one kid, you can skip to the comics). A 529 Plan account can only have one beneficiary, but some parents or grandparents will open one for their eldest then when they are done with college change the beneficiary to the next child in line.

There are advantages to doing things this way. Some plans, especially for smaller accounts, have an annual pre-account fee. Using only one will incur only a single fee or might get you to an amount where the fee is waived. Some plans have a minimum initial contribution amount or minimum monthly additions. Having a single account can get you over these minimums. And then there is only one account to worry about, one statement to look at, etc.

Generally, I prefer to have an account set up per child. There might be several years or over a decade between siblings. You can imagine that the best investment mix for the one entering college next year might be different from the one still in diapers. Having a single account means that you are either being too conservative with one or too aggressive with the other.

Tracking who gets what can also be messy. You might end up overspending on the first to enter college leaving little for those who follow. Alternately, you might save funds in the account for the younger child who ends up going to a cheaper school or skipping college entirely. Tracking gifts from other relatives that are for a particular child can also be difficult unless you don’t mind working it all out on a spreadsheet.

And if your family can save most future college costs ahead of time, with a single account you can run into a maximum contribution limit. All plans have this, and they are quite adequate for a single child, but could easily run out of room for the rest.

As with most things in life, there are pros and cons, more than I’ve listed here. Get to studying now so that your kids can do so in the future.