Should I Open a 529 for Each Child?
Choosing between one 529 plan or several for your children has subtle financial implications. Understand the factors that guide the right savings strategy.
A 529 plan is a savings account that encourages saving for future education costs. It offers tax advantages, as investments can grow federally tax-free, and withdrawals for qualified expenses like tuition are also exempt from federal taxes. For parents with multiple children, a question arises: is it better to open a single 529 plan or a separate one for each? The decision involves weighing administrative ease, investment flexibility, and tax implications.
Using a Single 529 Plan
A 529 plan account is structured to have one owner and one designated beneficiary at a time, so you cannot list multiple children on a single account simultaneously. However, the account owner has the flexibility to change the beneficiary. An owner can fund a single 529 plan, use the funds for the oldest child’s education, and then change the beneficiary to the next child to use the remaining balance.
The process for changing a beneficiary is straightforward, often requiring a form from the plan administrator. According to IRS rules, this change can be made without tax consequences if the new beneficiary is a “member of the family” of the previous one. This is a broad definition that includes siblings, parents, aunts, uncles, nieces, nephews, and first cousins.
Opting for a single account simplifies administration, as it means tracking only one set of investments and reviewing one statement. It can also be more efficient for using all the funds. Any money left over after one child’s education can be easily reallocated to another, ensuring the tax-advantaged savings are fully utilized.
Opening a Separate 529 Plan for Each Child
The alternative is to establish a distinct 529 plan for each child, which involves opening and managing multiple accounts. While this requires more administrative effort than a single account, it offers advantages in how the money is invested and tracked.
A benefit of separate accounts is the ability to tailor the investment strategy to each child’s age and time until college. Many 529 plans offer age-based or target-date investment portfolios, which automatically adjust their asset allocation to become more conservative as the beneficiary gets closer to college age. With separate accounts, each child’s portfolio can be aligned with their individual timeline.
Maintaining separate accounts provides clear tracking of funds for each child, which can be important for fairness and estate planning. It ensures that contributions made for one child are clearly demarcated for their benefit. This separation can prevent potential disagreements and simplifies the process of dividing assets.
Key Financial and Tax Factors in Your Decision
State Tax Deductions or Credits
A financial incentive for opening separate 529 plans comes from state tax benefits. While there is no federal tax deduction for contributions, more than 30 states offer a state income tax deduction or credit. Some states offer the tax benefit on a per-taxpayer or per-household basis, meaning the maximum deduction remains the same regardless of how many 529 accounts are funded.
In contrast, other states offer the tax deduction on a per-beneficiary basis. For residents of these states, opening a separate account for each child allows them to multiply the state tax deduction. For example, if a state allows a $4,000 deduction per beneficiary, a family with three children could deduct up to $12,000 annually by contributing to three separate accounts.
Gift Tax Considerations
Federal gift tax rules also play a role, as contributions to a 529 plan are considered completed gifts to the beneficiary. Under federal law, an individual can contribute up to the annual gift tax exclusion amount—$19,000 for 2025—to any person each year without filing a gift tax return. By opening separate 529 accounts, a contributor can give up to this limit to each child annually.
A feature of 529 plans is “superfunding,” the ability to make a lump-sum contribution of up to five times the annual exclusion amount at once and have it treated as if spread over five years. For 2025, this allows an individual to contribute up to $95,000 ($190,000 for a married couple) to a beneficiary’s account in one year without incurring gift tax. This five-year averaging is applied on a per-beneficiary basis, so separate accounts allow for this accelerated gifting strategy for each child.
Financial Aid Impact
For the Free Application for Federal Student Aid (FAFSA), a 529 plan owned by a parent is reported as a parental asset. When calculating the Student Aid Index (SAI), parental assets are assessed at a much lower rate (a maximum of 5.64%) than assets owned directly by a student (20%).
A parent must report the total value of all 529 plans they own on the FAFSA for each child applying for aid. Because the total value of all accounts is reported, splitting funds into separate accounts does not change the impact on financial aid.
Aggregate Contribution Limits
Each state-sponsored 529 plan sets a lifetime contribution limit for a single beneficiary, which is often over $500,000 and designed to cover the full cost of higher education. Most families are unlikely to reach these aggregate limits for any single child.
These high contribution limits apply on a per-beneficiary basis, so establishing separate accounts for each child provides a distinct contribution limit for each one. For high-net-worth families planning to make very large contributions, this structure ensures that each child has their own full contribution runway.