When to have more than one 529 plan

By: Savingforcollege.com


Dear Joe, I have two kids and am opening an account for each of them. I am planning on using the Utah plan for both. Should I consider separate state plans? Or is going with two accounts in one state's plan OK? Thank you. -- Steve


Dear Steve,

I'm giving you my answer in two parts.

The first part is to tell you that for our own two children -- one now in college and the other in high school -- my wife and I currently have accounts in 32 different 529 plans. Our 529 accounts hold a variety of investments including age-based options, 100 percent equity options, principal-protected options, FDIC-insured certificates of deposits and even prepaid tuition plans.

The second part of my answer is to suggest that you NOT follow my example. The reason my wife and I have so many different accounts is because it helps in my research of 529 plans, and many of our accounts carry small balances. Most parents or grandparents can find what they need within a single 529 plan, even when they have more than one child, and it's a lot simpler dealing with only one 529 plan.

Even so, there are situations where it makes sense to use a different 529 plan for each child.

Occasions that call for multiple 529 plans

• If your children are more than a couple of years apart in age, you will most likely have different investment objectives for their college savings. You may decide that one particular 529 plan has better equity-weighted investments (suitable for a young child) while a different 529 plan is more attractive for its conservative options (suitable for an older child). The "age-based" options available in many 529 plans, including Utah's, will automatically adjust as your children grow older, but you may still find differences in the target blends of equities and fixed income at various ages, and that may cause you to choose different plans for your two children.
• If you have a sense of which particular schools, or types of school, your children are likely to attend, the choice of institution may influence your selection of a 529 plan. This is especially true if your state offers a prepaid tuition plan, or if you are considering the private-college Independent 529 Plan. A few of the 529 savings plans also offer extra benefits for students attending certain schools. For example, the child of a New Jersey resident using New Jersey's 529 savings plan is eligible for a one-time scholarship of as much as $1,500, but only if attending a New Jersey private or public institution. And students attending one of the 200 private colleges affiliated with the SAGE Scholars program may get an extra boost if you join the Pennsylvania or Wisconsin 529 savings plans.
• If you're simply not sure about your choice of 529 plan, you can hedge your bets by spreading your contributions among two or more 529 plans. You might also achieve some more diversification in your investments by doing so, at least in regard to the fund managers handling your college savings.

Instead of opening accounts for your two children in two different 529 plans, you can obtain the extra diversification by using multiple 529 plans for each child.

When shopping for a 529 plan, you should always consider your own state's 529 plan, even if you ultimately decide to go with an out-of-state 529 plan. Special tax or other benefits may be available for using your in-state plan.

In some states, you may be able to take full advantage of a state tax deduction by enrolling just one of your children in the state's 529 plan, giving you more freedom to search outside your state for a 529 plan for your other child. In other states, however, the full state tax benefit is obtained only when both of your children are enrolled in the in-state 529 plan.