Opening Multiple 529 Accounts

Would you address the issue of college saving for multiple children, especially if their college careers will overlap? We have a 2-year-old and a 5-year-old and are wondering if there are any hints. Do you invest in one 529 and have one child as beneficiary for a couple of years and then switch to the younger one, or do you invest in separate plans?

Open a 529 account for each child. Even though you could lump all of your money together in one 529 in your oldest child's name, then switch the beneficiary as each child reaches college age, it's better to keep the accounts separate. That way, you can do a better job of matching the investments with each time frame and monitoring how close you are to your goals.

Joe Hurley of Savingforcollege.com also points out that you can contribute more with multiple beneficiaries before incurring the federal gift tax, and there's no confusion about your intentions if anything happens to you. If one child doesn't go to college or needs to use less money, it's easy to switch the beneficiary. And unlike custodial accounts, the 529 is considered the parents' asset for financial aid, which you're more likely to qualify for with multiple children in school. And some states let you take a bigger income-tax deduction each year if you invest in separate accounts.

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If you don't want to worry about monitoring the investments for each account, use age-weighted funds that automatically become more conservative as each child's freshman year approaches. But be careful about 529s that charge fixed-dollar fees for each account rather than asset-based charges.

To look up each plan's fees, tax rules and other details, see Find the Best 529 Plan.