Saving for your child’s education is straightforward enough — if you have an only child. Add siblings to the picture, and suddenly, saving for college becomes a bit more complicated.
Treating kids evenly can be harder when it comes to a goal like college, where you have years to go and many different options for which college (and costs) your child might end up with. First, there’s the financial side: Which savings tools should you use, and how can you use them most effectively? And then there’s the philosophical side: What does it mean to be “fair” among siblings, when their needs won’t be exactly the same?
The right answers will likely depend on your family’s individual circumstances and goals, but experts say helping more than one child attend college doesn’t have to be overly complex. You have options, and you can choose the approach that best suits your finances and your outlook on setting your children up for success.
How to Save for Siblings Using a 529 Plan
A smart tool for saving for college is a 529 plan. You can benefit from tax-deferred growth and tax-free withdrawals when you take money out for qualified expenses. If you have more than one child, you can use a single 529 plan and change beneficiaries as needed, or open a separate 529 plan for each child.
While using one 529 plan might result in lower maintenance fees and fewer financial accounts to manage, most families find greater benefits in opening separate 529 plans for each child. There are pros and cons to both approaches, but in general, using separate accounts allows you to invest in portfolios that are appropriate to each child’s age, and may provide greater state tax benefits, increased flexibility, and higher contribution limits. Separate accounts also make it easier for a parent to show a child that money is set aside specifically for them.
Managing a Single 529 Plan
A 529 plan can only have one designated beneficiary at a time. That means if more than one of your children attends college at the same time, then a single 529 plan could be too restrictive. But if your children’s college years don’t overlap, you could simply change the beneficiary when an older child finishes college. You can change beneficiaries as needed using forms found on the 529 plan’s website.
Balancing Multiple 529 Plans
Let’s assume you open separate 529 plans for each of your children. How do you keep them on par with each other, so each child receives equivalent support?
The simplest scenario might be starting a 529 plan for each child at the same age and contributing the same amount to each at the same frequency. In that case, with the same time horizon for each plan to grow, your children should have similar amounts to spend on college by the time they reach 18 — in theory, anyway.
In reality, a number of factors can keep the balances from being equal. For instance, personal financial challenges might prevent you from contributing the exact same amounts each year. Market performance could lead one plan to lag more than another. And your children may choose to attend different schools — with very different tuition costs.
The good news, says Matt Calme, a wealth advisor with HCM Wealth Advisors, is that parents generally don’t need to worry about uneven 529 plan balances.
“Excess funds can always be rolled to another child’s 529 account without tax implications,” he says.
If one account inches past the other, you can simply roll some excess funds from the higher account into the lower account and achieve balance that way. This flexibility should also give you peace of mind if your older child ends up not needing all of the money in their 529 account — because if there’s money left over, you can roll it over to another child’s 529 without incurring taxes.
Financial coach and blogger Michael Ryan says it can be difficult to achieve perfect equality across accounts. A number of factors could leave you with different balances, despite your best efforts. Ryan’s strategy is to focus his saving efforts on his older child.
“My wife and I chose to save extra for our older son, as his [excess] 529 contributions can easily be transferred to our younger son,” he says. “This way, we can ensure that both of our children are supported when it comes time for them to attend college, regardless of any differences in scholarship opportunities or other factors.”
Especially if you have a larger age gap between kids or are catching up on contributions, you might embrace an uneven college savings balance for now, if it means you’re in a better position to share funds fairly in the long run.
What to Do With Leftover 529 Assets
Parents sometimes worry about what will happen if they set up a 529 plan and end up not needing the funds. Maybe that’s because one of your children didn’t end up going to college, or opted for a state school when you were saving up in case they wanted to go private.
Whether you open one or more 529 plans, you have several options for unused funds:
- You can rename the beneficiary to another family member who will be attending college, including your stepchild, your sibling, your spouse, your child’s spouse, your niece or nephew or their spouse, among others. You can even make yourself the beneficiary.
- You can keep the account for your child’s future use — in the event they decide to attend college or pursue a graduate degree later in life.
- You can pass the plan on to a grandchild.
- You can withdraw the funds, which are subject to income tax and a 10% penalty on the earnings.
- Starting in 2024, beneficiaries can roll over up to $35,000 from a 529 plan in their name into a Roth IRA over the course of their lifetime, though there are certain rules to be aware of.
How to Support Children Fairly With Different Goals
Financial fairness in families can have an emotional side, too. How do you strike a balance between purely mathematical equality and supporting children fairly when their needs end up varying significantly?
Financial favoritism can cause conflict among siblings when one child receives greater financial support. It’s not difficult to see how it occurs — two children rarely have identical needs. But giving more to one child can have real consequences.
A recent survey found that 40% of Americans who grew up with siblings thought their parents had a favorite child. Showing favoritism can lead to resentment between siblings, harm the parent-child relationship, and lead to an increased likelihood of loneliness. Even if you don’t give exactly the same to each child, dollar for dollar, you can avoid financial favoritism with communication and a well-defined plan.
Define What “Fair” Means to You
Syble Solomon, a coach who specializes in the psychology of money and creator of the Money Habitudes Personality Profile, says the meaning of “fairness” differs depending on the individual. “Because money represents so many different emotional associations, ‘fair’ and ‘equitable’ are truly in the eye of the beholder,” she says.
Parents need to talk about their philosophies around money and fairness with their kids and explain their reasoning when one child receives more than the others, she says. Without these conversations, “there will almost definitely be misunderstandings and resentment.”
For one family, fairness could mean offering each child a certain dollar amount to be used toward their education, with the understanding that if they need more money, they’ll have to fund the difference on their own, and if they use less, they can put the remainder toward other goals. For another family, it could mean paying for tuition, books, and living expenses until graduation — regardless of price differences — because they want their children to finish college debt-free.
One Way: Offer Equal Funds
The simplest (although perhaps the strictest) way to ensure equal shares is to set specific funds for each child. If you know you’re willing to spend $10,000 per year for each year of college, no matter where they are accepted, share that with your kids as early as possible. That information could motivate them to seek more scholarship opportunities or focus their college search on in-state schools.
Another Way: Support Other Accomplishments
There may be situations where adhering to a strict dollar amount doesn’t meet your family’s needs or your own definition of fairness.
Consider, for example, if one of your children is accepted to a prestigious university with a high price tag and you have the means to help them attend, while your other child attends a less expensive college. Maybe one child needs less money because they won a major scholarship that provides a full ride or covers a significant portion of their costs, while your other children haven’t received the same opportunity. Perhaps one of your children attends a less expensive trade school or community college, or skips college altogether, while your other kids attend four-year universities.
As Solomon points out, achieving fairness can be complicated, despite your best intentions. “In being ‘fair,’ a parent may give much less money to a child who has received scholarships or has diligently saved money, rationalizing that they don’t need as much help,” she says. “That can be interpreted as being punished for being accomplished and working hard, or rewarding the other child for not being responsible or not applying themself.”
To mitigate these discrepancies, Solomon suggests parents broaden their notion of offering support. That could look like investing in your child’s business, helping them with the down payment for their first home, or otherwise helping them invest in their future.
Ultimately, how you support your children’s future goals is up to you and depends on your overall financial picture. But thinking ahead and being upfront about your intentions could save you and your children conflict and confusion down the road.
The Bottom Line
Putting money away for children’s future college education can be challenging, but helping your children in a way that’s fair and equitable doesn’t have to be. Whether you use one or more 529 accounts, set dollar limits on your support, or shuffle funds as needed to keep your giving equivalent, there are many ways to help your children reach their goals.
Regardless, talking openly and often with your family could go a long way toward fostering strong relationships and giving your kids the key information they need to make the best decisions for them.