Pros & Cons of Opening a 529 Plan for Each Child

529 plans offer tax-advantaged 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 if you, as the account owner, change the beneficiary when it’s time to pay for your next child’s college expenses — at no cost. 

Usually, having a separate 529 for each child makes sense, but some parents prefer a single plan. Here are some advantages and disadvantages when determining the best college savings plan strategy for your children.

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 simultaneously. 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 a college education. 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 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 $4,028 per beneficiary by an individual are eligible for a state tax deduction from Iowa state income tax, and up to $8,056 are deductible for married couples who each make their own contributions in 2024. Parents with separate 529 plans for three children may deduct as much as $24,168 in 2024.

4. You Might Be Able to Save More

Each state has a maximum aggregate 529 plan limit per beneficiary intended to cover the college costs for an expensive college and graduate school education in that state. You can save beyond the aggregate if you have separate accounts 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 gives a gift to a specific child, they may be reluctant to contribute to a 529 plan account 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 is $18,000 in 2024. 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

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

Plus, some kids delay attending school for 1-2 years, which could hinder your financial planning. Having multiple 529 plans gives each of your children access to money in their account regardless of whether their siblings are in school.

Disadvantages of Using Separate 529 Plans for Each Child

Using separate 529 plans for each child isn’t the right decision for everyone. Some downsides, such as extra costs or additional administrative requirements, may impact your decision. 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 most significant 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 non-Arkansas residents a $20 annual account maintenance fee. 

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 must manage and track investments for multiple accounts. You’ll also receive statements for each account, which 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 remember 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, if you have one account for multiple children, you’d have to change the beneficiary each time you take out a distribution to pay for a different child’s college expenses. 

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 easier to set up automatic investments than manually depositing each account. However, some 529 plans have minimum contribution requirements to use their automatic contribution plans. A family with more than one 529 plan must commit to contributing the minimum amount to each plan every month.

The Bottom Line

So, should you open a 529 for each child? For most families, the pros outweigh the cons. State fee waivers and proper account management practices easily rectify the disadvantages. 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 simultaneously on your 529 account. However, you can change beneficiaries on your 529 plan at any time. So, while you can’t actively share the account between siblings simultaneously, you can share an account over time, one after another.