Pros & Cons of Opening a 529 Plan for Each Child

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Kathryn Flynn

By Kathryn Flynn

December 17, 2022

529 plans offer tax-deferred investment growth and tax-free withdrawals when you use the funds to pay for qualified education expenses. Parents might wonder: should I open a 529 for each child or use the same one for multiple children? Most of the time, the answer is yes but we will explain below.

If you’re ready to open up a new 529 plan for one of your children, consider using our best 529 plan rankings to help you choose which plan might be right for your family.

Do I Need to Open a Second 529 Plan for My Second Child?

You may use a single 529 plan account to save for more than one child as long as you change the beneficiary when it’s time to pay for your next child’s college expenses — at no cost. 

In most cases, it makes sense to have a separate 529 for each child, but some parents may prefer to use a single plan. Here are some advantages and disadvantages to consider when determining the best college savings strategy for your children.

Pros & Cons of Opening a Second 529 Plan

Pros

Cons

More customizable investment mix

Increased maintenance fees

Minimized risk of non-qualified expenses

More account management

More significant state income tax break

Larger minimum contribution requirement 

Better savings

 

Assurance and comfort for each child

Bigger 529 contribution limits

Easier to track gifts

Larger gift potential

Advantages of Using a Separate 529 Plan for Each Child

Having a separate 529 plan for each of your children can be the right move for some people, especially if your children are close in age. While you can change the beneficiary of an account to your second child in the future, you can’t get money for each child at the same time. Here are some of the best benefits of opening a new account for each of your children.

1. You Can Customize the Mix of Investments for Each Child

If your children are different ages, they each have a different investment time horizon. With separate 529 plans, you can select investments based on each child’s age and when they will start taking distributions to pay for college. This is especially true if you plan to use an age-based investment option.

2. You Minimize the Risk of Non-Qualified Expenses

What happens if you have one account for multiple children? You won’t be penalized if you change the beneficiary name before using funds for the second child.

But what if you forget? If you don’t change the beneficiary name, you’ll be penalized. Distributions used to pay for education expenses for someone other than the designated beneficiary are considered non-qualified. They’re subject to ordinary income tax and a 10% penalty on the earnings portion of the distribution.

3. You Could Benefit From Income Tax Rules

Many states offer an income tax benefit based on 529 plan contributions. Some states allow taxpayers to claim the income tax benefit per beneficiary. For example, in Iowa, 529 plan contributions up to $3,522 per beneficiary are deductible from Iowa state income tax. Parents with separate 529 plans for three children may deduct up to $10,566 in 2022.

4. You Might Be Able to Save More

Each state has a maximum aggregate 529 plan limit per beneficiary intended to cover the cost of an expensive college and graduate school education in that state. You can save beyond the aggregate if you have separate 529 plans for each child.

5. It’s Easier to Receive and Track 529 Plan Gifts

Grandparents and other relatives may want to contribute to a child’s 529 plan instead of giving a traditional holiday or birthday gift. If someone is giving a gift to a specific child, they may be reluctant to contribute to a 529 plan account that is shared with a sibling.

6. Grandparents Can Give Larger, Tax-Free Gifts

Contributions to a 529 plan are considered gifts for tax purposes. The qualified annual gift tax exclusion was $15,000 per beneficiary in 2021 and $16,000 in 2022. Grandparents who contribute to 529 plans as part of an estate planning strategy can remove a larger amount from their taxable estate if each grandchild has a separate 529 plan.

7. Multiple Children Can Receive Money in the Same School Year

If you plan on using the same 529 plan for multiple children then they can’t overlap in going to school. If you have kids only 2-3 years apart and both plan on being in school at the same time for 1-2 years then one of them won’t be eligible to receive money for those years.

Plus, some kids delay going to school for 1-2 years, which could throw your financial planning off. Having multiple 529 plans gives each of your children access to money in their account regardless of whether their siblings are in school or not. 

Disadvantages of Using Separate 529 Plans for Each Child

Using separate 529 plans for each child isn’t the right decision for everyone. There are some downsides that may impact your decision, such as extra costs or additional administrative requirements. Before pulling the trigger you should consider the following cons to opening an account for your children individually.

1. There May Be Additional Fees to Maintain Each Account

The biggest disadvantage to having separate 529 plan accounts for each child is that you may have to pay an account maintenance fee for each account. For example, Arkansas’s GIFT College Investing Plan charges a $20 annual account maintenance fee to non-Arkansas residents. 

However, this perceived disadvantage isn’t as costly as it looks. Most 529 plans do not charge an account maintenance fee and the ones that do often waive them for: 

  • State residents,
  • Investors who satisfy minimum balance requirements,
  • Investors who sign up for automatic investments, and 
  • Investors who agree to receive account statements using electronic document delivery. 

Learn More: View a complete list of 529 plan account maintenance fees.

2. You Will Have to Manage Each Account

With separate 529 plan accounts, you will have to manage and keep track of investments for more than one account. You’ll also receive statements for each account. This can create a lot of added administrative responsibility. 

Some parents may prefer the simplicity of using leftover money from the same account for another child. But keep in mind that you can move money from one 529 plan to another if one child goes to a less expensive college or doesn’t go to college and has money left over in their 529 plan.

Additionally, you’d have to change the beneficiary each time you take out a distribution to pay for a different child’s college expenses if you have one account for multiple children. 

3. Some 529 Plans Have Minimum Contribution Requirements for Automated Investments

With automatic investing, you won’t have to worry about forgetting to make 529 plan contributions each month. If you have more than one 529 plan account, it is also easier to set up automatic investments than to make manual deposits to each account.

However, some 529 plans have minimum contribution requirements to use their automatic contribution plans. A family with more than one 529 plan would have to commit to contributing the minimum amount to each plan every month.

A good place to start:

See the best 529 plans, personalized for you

The Bottom Line

So, should you open a 529 for each child? We think so. The savings alone are enough of a benefit to encourage a separate 529 account for each child. And the disadvantages are easily rectified by state fee waivers and proper account management practices. Need more support with 529 plans? Find a college savings professional in your area!

Frequently Asked Questions (FAQs)

Can I have multiple 529 accounts for the same child?

Yes, you can have as many 529 plans as you would like and you can name the same beneficiary for every child if you would like. However, there are added costs and administrative requirements for every 529 account you open so you may want to consider if it’s the right decision.

Can you split a 529 account between siblings?

You can’t have multiple beneficiaries at the same time on your 529 account. You can, however, change beneficiaries on your 529 plan at any time. So while you can’t actively share the account between siblings at the same time you can share an account over time, one after another.

A good place to start:

See the best 529 plans, personalized for you

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