529 Plans

Can You Contribute to a 529 Plan Before a Child Is Born?

Opening a 529 plan for a loved one has long been a popular way to start saving for college, and the earlier in the child’s life the account is started, the better.

February 22, 2021
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Team Sootchy
Can You Contribute to a 529 Plan Before a Child Is Born?

Opening a 529 plan for a loved one has long been a popular way to start saving for college, and the earlier in the child’s life the account is started, the better. Because it’s a type of investment account, giving as much time as possible for the account to generate returns is important if you’re going to maximize its earning potential and get the most out of its tax benefits, but how does this logic apply in situations where a child has not yet been born? Many families start dreaming of the possibilities in their baby’s future well before birth, and some want to open a 529 plan to help fund those future opportunities. However, can you contribute to a 529 plan before a child is born? To find out, keep reading as the experts at Sootchy discuss this topic at length.

Can You Open a 529 Plan Before a Child Is Born?

If you or a loved one is planning to have a child in the near future – or even in the distant future – you might have already started thinking about how to fund that child’s education. Given the astronomical price tag on college tuition these days, it’s no surprise, especially considering the rate at which those tuition prices are climbing.

Because 529 plans carry a wealth of benefits that can make higher education more affordable, they’re an attractive option for families from every walk of life, but can you open one for a child who hasn’t even been born? The technical answer to this question is no, you can’t; in practice, however, the response is more like, “Yeah, sort of.”

Anytime you open a 529 plan for someone, you have to name a living beneficiary, which is typically the person who will be using the funds on their education. Of course, if that person has not yet been born, you can’t exactly put their contact info on the form for a 529 plan, but there’s an easy workaround that makes this limitation essentially moot.

All you have to do is to open the 529 plan that will eventually benefit the child in your own name or in the name of one of the child’s close relatives; appropriate options include a sibling, aunt, uncle, first cousin, parent, or grandparent (plus any of their spouses). Once you’ve done so, set up the plan with the eventual recipient – the unborn child – in mind, meaning that you should select long-term investment options, make contributions as you can, etc.

Once the baby is born and legally recognized as an individual, you can make them the beneficiary of the 529 plan by filing the appropriate form on your plan’s website or contacting the plan’s administrator. As long as the first beneficiary is one of the relatives listed above, you’ll pay no taxes and be spared any penalty when switching the beneficiary, and you’ll also be able to change investments without contributing to your two-changes-per-year limit.

Making Contributions to a 529 Plan for an Unborn Child

Once you have a 529 plan set up for your future child, it’s time to think about contributions. As outlined above, it’s possible to open and contribute to a 529 plan before a child is born, but what does that extra-early start mean for your contributions and investments?

The answer will depend on the unique financial goals of you and your family, as well as your plans for your child’s future education. If you want maximum flexibility in terms of how and where the funds are spent, the best option is probably a 529 education savings plan, in which case you might have full discretion on how much and how often to contribute to the 529 plan; should you prefer to lock in the price of in-state tuition before your child is born, a prepaid tuition plan may make more sense, and these plans generally have prearranged contributions at set intervals, per a contract you’ll sign.

Also, keep in mind that the earlier you make contributions to your 529 plan, the more you’ll get in return. Some of the best accounts have rates of return of 8-9% or higher; over the course of 18 or 19 years, those returns compound to become significant funds, and the more time you give that process, the more effective it’ll be. Plus, contributions made especially early can be put toward more risky investments, since there’s more time to make up any losses in the event those investments don’t pan out.

Picking a 529 Plan Before a Child Is Born

If you already know which type of 529 plan you’re looking for, you’re ready to start weighing the many options available to you. Each state has its own plan – some have several – so it’s easy to be overwhelmed by your options. However, some 529 plans have historically performed much better than others; the following are some of the top choices for opening a 529 plan before a child is born.

• Ohio’s CollegeAdvantage 529 Plan

Utah’s my529 Plan

• West Virginia’s SMART529 College Savings Plan (Direct)

• New York’s 529 College Savings Program (Direct)

Contribute to a 529 Plan for Your Child or Loved One with Help from Sootchy

With all the variations out there, picking a 529 plan can seem like an overwhelming task, but know that the experts at Sootchy are here to help. By simply downloading the free Sootchy app, you can open a new 529 plan, manage that account from your mobile device, and even allow friends and relatives to contribute to the 529 plan before your child is born. Learn more about the benefits of 529 plans today by visiting Sootchy online.

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