Should I have A Separate 529 for each child?
I have been receiving questions on 529 College Savings and a lot people are interested in it. So, I plan to write more on this topic. Recently, I received a question from one of the readers – “Should I have a separate 529 savings account for each child?”
This is a great question and it deserves a separate blog post.
So, here we go…
If the 529 college savings plan is the single method you are relying on to save for college education for your kids, then the short answer is to have a separate plan for each child, and here are the reasons why I recommend it:
#1 Tracking – You can look at each account and easily know how much you have saved up for each child. It makes tracking so much easier. You can quickly get a sense of if you are saving enough or not and make course corrections appropriately.
#2 Timing – Each kid goes to college at a different time frame. Your investment would be aggressive for a young kid vs. a kid who is a couple of years away from going to college. Whether you do the investment allocation (stocks / bonds) on your own, or if you are using an age-based fund, it is easier to manage each child’s account separately based on the time frame when they will be in college.
#3 State Income Tax Break – You might be eligible for a state income tax break on your 529 contributions. Virginia, for example, provide a tax break on contributions of up to $4000 per account per year. This means if you have separate accounts, you get to deduct more from your state income tax.
In addition, some states provide a state income tax break on your 529 contributions made to any state’s plan. According to Savingforcollege.com, “Six of these states offer taxpayers a deduction for contributions to any state’s 529 plan: Arizona, Kansas, Maine, Missouri, Montana and Pennsylvania.”
You can check if your state provides an income tax break at – http://www.savingforcollege.com/.
Tax break shouldn’t be the only thing to consider. You should consider, the fund performance, fees, and tax break while choosing the college 529 savings plan.
If your children are really young (like for example, all kids are under age 5 and are 10+ years away from college), you could start out with a single account.
You should eventually consider having separate 529 accounts for each child as quickly as possible for the reasons mentioned above.