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[PODCAST] How to Effectively Save For College When You Have Multiple Children
http://www.savingforcollege.com/articles/how-to-effectively-save-for-college-when-you-have-multiple-children-656

Posted: 2014-08-05

by Kathryn Flynn

More and more American families are recognizing the importance of saving for future college costs. In fact, according to Sallie Mae’s How America Saves for College 2014, the total amount of money saved for college is up 30 percent from last year, and 29 percent of those saving for college are doing so with a 529 plan. These families are enjoying the benefits of a professionally managed investment account that grows federal tax-free and will not be taxed when the money is withdrawn as long as it’s used toward qualified education expenses. They may also be getting a state tax break if their state offers one.

Which 529 Plan is Right for Me (VIDEO)

529 plans also sometimes offer age-based investment options, where the plan automatically adjusts your investments based on the age of the beneficiary. For example, the plan will be more heavily weighted toward stocks when the child is young and then more conservative investments when the time for college draws near. But what happens when a family has more than one child to save for? Are there advantages to keeping all of the funds in one account, or are you better off opening separate accounts for each child? In this new podcast, I discuss the best ways to divvy up your college savings with Joe Hurley, Founder of Savingforcollege.com and otherwise known as the 529 Guru.

Transcript

Hi this is Katherine Flynn and I'm here with Joe Hurley, the founder of Savingforcollege.com, and today we'll be discussing the best way to save for college when you have multiple children. Joe, I was hoping to be able to pick your brain on something. I have three children- ages 2, 4 and 6. I have been saving money in a 529 plan since before they were born, and I am still named as the beneficiary. Should I separate the money into a different account for each child?

Well, thats a good question, and that really all depends. You can certainly keep the funds in one account for now and change the beneficiaries when it’s time for college, but I generally recommend having a plan for each child.

What are the benefits of having separate college savings plans?

Having separate accounts would make it easier to keep track of your funds and invest the money in each child’s best interest. For example, as your oldest gets closer to college, you will want her investments to be more heavily weighted toward safer fixed income options, but at the same time you could still be investing more aggressively for your youngest. Your plan probably offers age-based investment options, where the plan allocates your investments automatically based on the age of the child.

Some states also base their tax breaks on the number of beneficiaries so by only having one plan you could be missing out. Having separate 529 plans also makes it more clear how much you are saving for each child if something were to happen to you or your husband.

Finally, there's a gift tax reason for having separate accounts. You'll get an annual gift tax exclusion for each child. If you have only one account, you could actually be putting yourself into some gift tax difficulties.

If we decide to split the funds into three separate accounts, should I contribute equal amounts for each child?

This would keep things simple, and allow you to take advantage of state tax breaks for each account if your state offers them. However, keep in mind that you have more time to save for the younger children so starting equal contributions right now may mean you end up saving less overall for the oldest child.

Families with more than one child who haven’t started saving yet might want to consider larger contributions for their older children since their time horizon is shorter for them.

The easiest thing to do is to start a 529 college savings plan when each child is born, and then contribute equal amounts each month until they graduate from college.

But wouldn’t my youngest need more money to pay for college since prices will go up?

That’s very likely, since college prices have been rising faster than inflation and investments for some time now. Saving more for the third child could give you some peace of mind, but remember that your oldest and youngest are four years apart. That means if there are any unused funds in the oldest child’s account – maybe from scholarships or choosing a less expensive school – you can always change the beneficiary of her plan and use the leftover funds for the youngest child.

Also, since your youngest has the longest time horizon until college, you should technically be able to get away with contributing smaller amounts each month to their account since your money will have more time to compound and grow.

I’m not sure I want to go through all the trouble of opening separate accounts. Wouldn’t we get stuck paying a bunch of fees?

There are sometimes account setup costs and maintenance fees for each account, but depending on your plan you might be able to get some of them waived if you sign up for automatic contributions from your paycheck or bank account.

If you choose to use one account for all three children you’ll want to make sure to use a customized portfolio which will allow you to invest for each time horizon. However, this could make things more complicated for you.

However, if your 529 plan has high minimum funding requirements you could keep the funds in one account until you’ve saved enough to open another one. This is a good strategy for families with limited means who want to jump-start their savings.

Well, I think you convinced me! I think I need to get started on opening two more 529 plans! Thanks very much for your time Joe!

More and more American families are recognizing the importance of saving for future college costs. In fact, according to Sallie Mae’s How America Saves for College 2014, the total amount of money saved for college is up 30 percent from last year, and 29 percent of those saving for college are doing so with a 529 plan. These families are enjoying the benefits of a professionally managed investment account that grows federal tax-free and will not be taxed when the money is withdrawn as long as it’s used toward qualified education expenses. They may also be getting a state tax break if their state offers one.

Which 529 Plan is Right for Me (VIDEO)

529 plans also sometimes offer age-based investment options, where the plan automatically adjusts your investments based on the age of the beneficiary. For example, the plan will be more heavily weighted toward stocks when the child is young and then more conservative investments when the time for college draws near. But what happens when a family has more than one child to save for? Are there advantages to keeping all of the funds in one account, or are you better off opening separate accounts for each child? In this new podcast, I discuss the best ways to divvy up your college savings with Joe Hurley, Founder of Savingforcollege.com and otherwise known as the 529 Guru.

Transcript

Hi this is Katherine Flynn and I'm here with Joe Hurley, the founder of Savingforcollege.com, and today we'll be discussing the best way to save for college when you have multiple children. Joe, I was hoping to be able to pick your brain on something. I have three children- ages 2, 4 and 6. I have been saving money in a 529 plan since before they were born, and I am still named as the beneficiary. Should I separate the money into a different account for each child?

Well, thats a good question, and that really all depends. You can certainly keep the funds in one account for now and change the beneficiaries when it’s time for college, but I generally recommend having a plan for each child.

What are the benefits of having separate college savings plans?

Having separate accounts would make it easier to keep track of your funds and invest the money in each child’s best interest. For example, as your oldest gets closer to college, you will want her investments to be more heavily weighted toward safer fixed income options, but at the same time you could still be investing more aggressively for your youngest. Your plan probably offers age-based investment options, where the plan allocates your investments automatically based on the age of the child.

Some states also base their tax breaks on the number of beneficiaries so by only having one plan you could be missing out. Having separate 529 plans also makes it more clear how much you are saving for each child if something were to happen to you or your husband.

Finally, there's a gift tax reason for having separate accounts. You'll get an annual gift tax exclusion for each child. If you have only one account, you could actually be putting yourself into some gift tax difficulties.

If we decide to split the funds into three separate accounts, should I contribute equal amounts for each child?

This would keep things simple, and allow you to take advantage of state tax breaks for each account if your state offers them. However, keep in mind that you have more time to save for the younger children so starting equal contributions right now may mean you end up saving less overall for the oldest child.

Families with more than one child who haven’t started saving yet might want to consider larger contributions for their older children since their time horizon is shorter for them.

The easiest thing to do is to start a 529 college savings plan when each child is born, and then contribute equal amounts each month until they graduate from college.

But wouldn’t my youngest need more money to pay for college since prices will go up?

That’s very likely, since college prices have been rising faster than inflation and investments for some time now. Saving more for the third child could give you some peace of mind, but remember that your oldest and youngest are four years apart. That means if there are any unused funds in the oldest child’s account – maybe from scholarships or choosing a less expensive school – you can always change the beneficiary of her plan and use the leftover funds for the youngest child.

Also, since your youngest has the longest time horizon until college, you should technically be able to get away with contributing smaller amounts each month to their account since your money will have more time to compound and grow.

I’m not sure I want to go through all the trouble of opening separate accounts. Wouldn’t we get stuck paying a bunch of fees?

There are sometimes account setup costs and maintenance fees for each account, but depending on your plan you might be able to get some of them waived if you sign up for automatic contributions from your paycheck or bank account.

If you choose to use one account for all three children you’ll want to make sure to use a customized portfolio which will allow you to invest for each time horizon. However, this could make things more complicated for you.

However, if your 529 plan has high minimum funding requirements you could keep the funds in one account until you’ve saved enough to open another one. This is a good strategy for families with limited means who want to jump-start their savings.

Well, I think you convinced me! I think I need to get started on opening two more 529 plans! Thanks very much for your time Joe!

 

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