Can you have multiple 529 plans for one student?

A 529 college savings plan invests money for a child’s education over time, and contributing early and often to a 529 plan can significantly reduce your out-of-pocket costs for college. It’s also possible for one person to be the beneficiary of multiple 529 plans, potentially reducing their out-of-pocket education costs even more. However, having multiple 529 plans is not always the best strategy; in many cases, it’s better to consolidate all contributions to a single account.

Can you have multiple 529 plans for one person?

You can have more than one 529 plan for one person, and the same individual can be the beneficiary on multiple 529 plans owned by other relatives or family friends. There isn’t any legal issue or concern with having two 529 plans for the same beneficiary, so if you want to, you can. For maximum benefits, you will want to open the additional accounts in different states because if you have multiple in the same state, they will be combined for tax purposes.

Benefits of multiple 529 plans

Multiple 529 plans can have advantages, including:

• Save more money. Every state has a balance cap for its 529 plan, but having plans in multiple states allows you to save up to each plan’s maximum. For instance, if you’ve met the $235,000 limit on Georgia’s 529 plan, you can save an additional $550,000 with Virginia’s plan.
• Make the most of fund flexibility. With multiple plans growing at different rates, you can draw from the account with the least growth (if you’re making a taxable withdrawal) or the one with the most growth (if you’re making payments toward college costs), to maximize your tax benefit.
• Use different investment strategies. If you have a clear investment strategy, having multiple 529 plans allows you to diversify your investment mix and take advantage of a wider variety of options. For instance, you could open up one plan that is relatively aggressive in its investments and open another that’s more conservative. This can be especially helpful if you are saving for different levels of education with various time horizons: for instance, private high school tuition and also college costs.
• Maximize tax deductions. Many states offer tax deductions on contributions to their 529 plan. You may choose to contribute to your state’s 529 plan up to the tax-deductible limit, then contribute your remaining funds to another state’s plan that has better benefits.

In most states, multiple accounts with the same beneficiary must be aggregated– so if you plan on multiple accounts, you will want to explore plans in multiple states. For instance, you may open one where the student’s parents live and another where their grandparents reside.

Drawbacks of multiple 529 plans

More than one 529 plan for the same child can have its downsides too:

• Could risk over-saving. Withdrawing your earnings from a 529 plan is tax-free only if they’re used for eligible education expenses. Otherwise, you’ll be hit with a 10 percent penalty and income taxes on amounts you withdraw for other purposes. However, if a beneficiary doesn’t end up needing all the money for their education, you may explore rolling the excess over into a Roth IRA account without paying a penalty.
• More fees. All 529 plans come with fees such as annual maintenance, account maintenance and sales fees. Those fees will stack with each plan you have. However, you may find that your tax savings far outweigh the fee payments on your accounts.
• Complicated process. The more 529 plans you open, the more you’ll have to keep track of. You’ll have to track several investment accounts, contend with more paperwork, and plan your contributions and distributions more carefully.

Ultimately, there are more potential benefits than drawbacks to holding multiple 529 accounts for a single beneficiary. You will want to weigh the fees and time investment of sourcing multiple funds against your savings goals, but establishing plans in multiple states can help you maximize tax savings.

Can you combine two 529 plans?

It is possible to combine two 529 plans into one by rolling over a 529 plan from an old account into a new one — similar to a Rollover IRA. To do so, you’ll submit a rollover request to your old plan holder. Your new plan holder will help with the transfer.

While combining two 529 plans into one is allowed, the IRS has some rules on frequency: You’re allowed only one penalty-free 529 rollover every 12 months for the same beneficiary.

What are good alternatives to 529 plans?

While 529 plans are one way to save for a child’s education, they’re not the only way. There are some other options, like:

• Roth IRA. Roth IRAs and 529 plans have similarities, but 529 plans are more restrictive in that they can be used only for education expenses. Roth IRAs are intended for retirement savings, but you can withdraw funds for education and other eligible expenses without penalty. If you don’t think that your beneficiary is going to college or you want to give them a plan B if they want to take another route, a Roth IRA is worth considering.
• High-yield savings account. If you don’t have a lot of tolerance for investing risk, you might want to try a savings account. The savings rate of return is much lower than that of typical investments, but you’re not going to lose money as you could with the stock market.

Bottom line

Having a 529 plan in place is a great way to save for education costs. If you have the means and plan to help yourself or a loved one attend college, this is a great step toward minimizing student loan debt.

You can have multiple 529 plans for the same child, but that doesn’t always mean that you should. Instead, explore all of your avenues and consider diversifying your savings and investments to support future plans.

Frequently asked questions

• Can multiple people have 529 accounts for the same child?

  Yes. There are two basic types of 529 accounts: a 529 Prepaid Tuition Plan and a 529 Savings Plan. But be aware that if you have multiple plans of the same type in the same state, they’ll be counted as one plan for tax purposes. That said, a plan of either type can be opened in multiple states, if you choose.

• What kind of expenses count as educational costs for 529 plans?

  Even when expenses fall within a qualifying category, it is a good practice to retain receipts for tax purposes. 529-eligible expenses include the following:

  • Tuition at qualifying institutions
  • Room and board, for students who are enrolled at least half time
  • Technology including a computer, printer, software, and related equipment, if necessary for enrollment
  • School supplies and textbooks
  • Special needs equipment and accessibility costs

• How do you estimate how much you should put in a 529 plan?

  There is no one-size-fits-all answer to how much you should contribute to a 529 plan. Be aware that each state limits the contributions that are tax-deductible each year. Consider using a college savings calculator to break your broader savings goals into a monthly benchmark, if you are planning long-term.