How to Use a 529 Plan for Multiple College Students

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Q. I have 3 kids and want to save for their college using a 529 plan. Should I set up one account and split it 3 ways, or do I need to set up 3 separate 529 accounts?

A. A 529 plan is operated by a state or educational institution. They make saving for college easier by offering tax advantages. While contributions aren’t tax deductible, earnings in the account are never subject to tax when you spend the funds on qualified education expenses. These include tuition, fees, books, required equipment, and room and board.

Each 529 plan can only have one designated beneficiary. So, if you want to save for more than one child or future student, you generally must open an account for each of them. There’s no limit on the number of 529 plans you can set up.

However, another advantage to a 529 is that you can change the beneficiary to another member of the family. Also, you can roll over funds to another 529 plan for the same beneficiary or for another family member without triggering any tax consequences.

For instance, let’s say you have a 529 plan in the name of your oldest child. Later on, you realize that you've saved too much for her. You could open a second 529 in the name of another child and roll over the excess money into his or her account. Or, if your oldest child is out of school, you could simply change the name on the plan to her sibling without penalty.

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