Explore College Savings Account Options for Multiple Children

US News

Illinois mom Kim Bissing and her husband feel the pressure of saving for college for her two children, 7-year-old Emily and 11-year-old Joey. There's a huge need to save no matter what each child decides to do in the future, Bissing says.

She and her husband are careful to ensure all contributions are even. They contribute $100 per month to each child's college savings in a tax-advantaged college investment account known as a 529 plan.

They also split a percentage of their workplace bonuses equally between their two children's college savings plans and contribute financial gifts from the children's grandparents.

Other parents give more to their older children's accounts, generally because the older child's account was started much later in the child's educational career.

"If you are starting each child's 529 plan when each child is born or close to it, then it makes sense to contribute equal amounts to each child's account," says Kelley Long, a Chicago-based certified public accountant.

If parents don't open a 529 plan for older children when they are young, contributing more to the oldest child's account can help even out the total college savings by the time the eldest is ready for college, she says. One client contributes $350 a month for the oldest, $250 for the next and $150 per month for the youngest.

[Find out about colleges that give discounts for siblings.]

While the goal is for each child to have the same amount of money when entering college, Long's client continued to deposit more funds in the eldest child's 529 plan account "because he knew that he could always transfer any unused amounts to his younger children," says Long. "Even though he had three accounts, it was viewed as one pot of education money for his family."

Some parents disagree over whether to have separate 529 plan accounts for each child or keep all college savings in one account.

"It really is a mix between my clients on how they do it for multiple children," says Joseph Clemens, a Colorado-based certified financial planner. In order to be clear about the money designated for each child in one account, Clemens encourages clients to assign each child an investment in a different mutual fund within the account.

Clear differentiation of investments within the account makes it easier to figure out how the money is allocated for each child, as well as how close the children are to their educational savings target. If parents use one account without having some way of designating the money, it's harder to figure out which money was invested on which child's behalf.

Some states have a minimum amount an account holder must have in the account to avoid being charged fees, and having one account for all children can be easier for some families. The beneficiary's name on the account can be changed to a younger child after older children complete their education.

[Consider these things when changing 529 plan beneficiaries.]

While Clemens supports clients who choose to keep multiple children's college savings in one account, he says having separate accounts for each child can work in certain states.

"In a state like Colorado where there aren't account fees for residents and really low minimums, there really isn't too much of a downside to having multiple accounts," he says.

But families with children who are close in age should be aware that an account can only have one beneficiary at a time. If two children are within four years of each other, having only one account can be problematic when it's time to use the funds, Clemens says. Parents need to think about when they expect each child to be in school.

[Learn how parents are billed for 529 plans.]

A child may only need to use the account for two years if he or she attends a trade school or community college. On the other hand, a child might need to use the account for eight years to pursue a medical degree. The exact number of years students will be in school is hard to predict when they're young.

Parents who want to keep all the money in one fund for a certain amount of time can open an account for the younger child and transfer funds into the second account when they are ready, says Clemens.

The process is simple, says Gil Armour, a San Diego-based certified financial planner. "The parent simply fills out a beneficiary change form, or a partial transfer request from one child to another, and the transfer is accomplished."

The choice of whether to use one account or multiple accounts is a personal decision for families. Parents should consider how they'll divvy up funds among their children when it's time for them to enter college, as well as the rules and fees of their state or of the individual 529 plan accounts.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

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