Though raising a child comes with a whole host of challenges great and small, few are as pervasive or as intimidating as finding a way to pay for college. This perennial problem has kept many a parent up at night, but by leveraging the right financial tools, it’s possible to minimize the amount in student loans your loved one ends up with or even eliminate that debt altogether. One of the most popular of these tools – the 529 plan – offers a variety of unique tax and investment advantages, but it also comes with restrictions. Given the benefits of 529 plans, opening multiple accounts may seem like a good idea, but can you have multiple 529 plans for one child? To find out, keep reading as we tackle this important question.
Can You Open Multiple 529 Plans for One Child?
If the thought of opening several tax-advantaged 529 plans sounds too good to be true, know that it’s not; you can open as many 529 accounts as you like, even within the same program, and families are free to shop around and choose from almost any program nationwide. Most states have one or more plans available, and few come with any sort of residency requirement. Simply put, you can open multiple 529 plans for one child, either in one state or stretched out across the country.
Keep in mind, however, that there are some caveats; perhaps the biggest one to be aware of is the way maximum contribution limits work. Every state limits how large a 529 account can grow, and this restriction generally applies across all 529 plans with the same beneficiary. In other words, you can have multiple 529 plans for one child in the same state, but you won’t be able to save more in total by doing so.
Benefits of Having Multiple 529 Plans for the Same Child
Now that we’ve covered the lack of restrictions regarding multiple 529 plans, let’s dive into another, related issue: Should you have multiple 529 plans for one child? To help answer this question, we’ll weigh the pros and cons of having multiple plans, starting with the upsides:
More Investment Options
Any 529 plan will come with specific investment options, and depending on the plan, the list of available funds and portfolios may be short – with only three or four options – or long – with dozens of investments to choose from. Whether the plan you’re considering has few or many investment portfolios, enrolling in multiple 529 plans can expand your options and help you diversify your college savings even further.
Mix Up Different Types of 529 Plans
Although most people talk about “529 plans” as though they were all the same type of account, the truth is that there are three varieties: the prepaid tuition plan, the education savings plan, and the ABLE account. Each type comes with a few idiosyncrasies; for instance, a prepaid tuition plan lets you buy chunks of college credits or semesters as part of a contract, while an education savings plan works like almost any other type of investment account. By enrolling in multiple 529 plans, you can take advantage of the benefits of several 529 plans all at once.
Bypass Maximum Contribution Rules
Above, we mentioned how opening several 529 plans in the same state will not help you avoid that state’s rules surrounding maximum contributions, but that doesn’t mean you can’t side-step this restriction. If you open 529 plans in multiple states, each plan will have its own independent limit on maximum contributions, so you could save up far more overall by doing so. However, most states have maximum contribution limits in excess of a quarter of a million dollars (or even half a million), so you likely won’t need to worry about this issue either way unless several family members want to open plans with the same beneficiary.
Fund Grade School and College
Since the 2017 tax bill was passed, 529 plans can be used to pay for private high schools and elementary schools in addition to college. However, these shorter-term objectives will require different savings and investment strategies, which means that having multiple 529 plans for your child – each with its own specific financial goal – could be beneficial.
Drawbacks of Having Multiple 529 Plans for Your Child
Generally speaking, a family will likely see few benefits from opening multiple 529 plans for one child unless their state has an especially low maximum contribution limit or they want to build up an account for subsequent college-goers. Should you still decide on multiple plans, keep the potential drawbacks in mind.
Maintaining and using even a single 529 plan can require significant work. Investments need to be monitored, paperwork needs to be filed, and contributions need to be allocated, all of which takes time, energy, and planning. To juggle these tasks for several plans will drain you even more, and considering the benefits are fairly limited, the effort may not be worth it.
Open One or Multiple 529 Plans with the Sootchy App
Just because the details of 529 plans can get complicated doesn’t mean that opening a plan has to be tough, too. By downloading the free Sootchy app to your mobile device, you can get started on one or multiple 529 plans for your loved one, then manage those accounts and make contributions at the push of a button. Learn more about the benefits of 529 plans by visiting us online or downloading the Sootchy app today.
