How to save for a child’s college education before the child is born

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Mark Kantrowitz

By Mark Kantrowitz

April 5, 2018

To open a 529 college savings plan, the account owner must provide the name and Social Security Number or individual Taxpayer Identification Number of the beneficiary. This prevents parents from opening a 529 plan for a child before the baby is born. Otherwise, there are no age restrictions on 529 plans.

How to save for college before the baby is born

There is a solution, however, that will allow a family to save for a child’s college education in a 529 plan before the child is born. Future parents can open a 529 plan in their own name, listing themselves as the beneficiary, and change the beneficiary to the child after the child is born.

Why save for college before the baby is born?

There are several reasons why parents may want to start saving for a child’s college education before birth.

The time available for saving is limited. Getting a head start on college savings can help families meet increasing college costs without having to borrow more. It is cheaper to save than to borrow. Starting sooner also provides more time for earnings to compound.

For example, if a family saves $250 a month from birth to age 17 at 4% annual interest, they will accumulate $73,116 in college savings, with 30% of the total coming from interest. If they start three years earlier, they will accumulate $91,999 in college savings, with 35% of the total coming from interest.

Starting to save earlier can also mean more years of state income tax deductions based on contributions to the state’s 529 college savings plan, if your state offers this benefit.

It is easier to ask friends and family to give the gift of college as part of a baby shower if the parents have already set up a 529 plan for the baby.

For grandparents, contributing to the 529 plan before their grandchildren are born is a good estate planning technique, letting them pass assets on to their heirs without incurring estate taxes. This is especially important if the grandparents want to leave a legacy for their grandchildren, but worry about living long enough to see their grandchildren enroll in college. 

Saving sooner is also important if the parents want to use the 529 plan to pay for elementary and secondary school tuition. 

Of course, the future is always uncertain. Just be aware that if you decide to take a non-qualified distribution from a 529 plan, you will have to pay ordinary income taxes plus a 10% tax penalty on the earnings portion of the distribution. As an alternative, you can use the funds to further your own education, or change the 529 plan beneficiary to another qualifying family member, such as a niece or nephew. 

How to open a 529 plan

You can start by checking out what your home state’s 529 plan offers. Over 30 states offer a tax credit or deduction for 529 plan contributions, which can help boost your savings. It’s also important to consider the plan’s fees and available investment options. Once you’re ready to enroll, you can sign up directly through the plan’s website, or with a financial advisor, and link your bank account to start making contributions. 

A good place to start:

See the best 529 plans, personalized for you