Saving for Two | Capital Group

Saving for two? You’re going to need more than one 529 education savings plan.

Each of your children is unique, with individual hopes and future plans. One way to acknowledge that individuality is by giving each of them an education savings plan that's right for his or her own situation. Find out how to keep all your children on track to a bright future.

Two children reading together

Key takeaways

  • Two is better than one when it comes to education savings plans.
  • Give them a sense of ownership and confidence.
  • Shop around for the best plan for your growing family.

Share toys? Yes. Share a 529 savings plan? Not so much.

Your family is growing and so are your plans for the future. You want to have a healthy college savings fund for each of your children, but may have questions. Can one 529 savings plan be shared by two? Or should you establish separate accounts for each child? What if you want to change 529 savings plans altogether? Here's the nitty gritty about using 529 savings plans for more than one child.

Pick the right plan

As you become a more experienced parent, you can become a more knowledgable investor too. Are you questioning your existing 529 savings plan? You may be able to find one with lower costs and better results.

Research which plans are available to you and which offer the best tax incentives. Be sure to factor in the expenses and fees associated with each plan. As you're researching, consider investing in CollegeAmerica®. It's the nation's largest 529 savings plan, with some of the lowest fees in the industry.1

A financial professional can help you sort through your options to choose the right one for your family.

Customize for their needs

Since your children will head off to college at different times, the investment mix of stocks, bonds and cash should be tailored to each situation. For example, as your oldest approaches college age, you may want to dial back to a more conservative investment mix. Meanwhile, you may want a more aggressive investment mix for younger children who still have time for their accounts to grow.

Some 529 savings plans offer target date funds, based on the date you expect your child to enroll in college. Separate 529 savings plans make this kind of individual planning easier.

Consider financial aid

It might seem easier to keep all your college savings in one pot and worry about dividing it up later, but remember that your account has only one beneficiary. If all your money is in that one account, it’s going to look like that beneficiary has much more money available. Plus, using the money for a child who is not the designated beneficiary would not be considered a qualified expense. So the earnings would be subject to a 10% federal tax penalty, as well as federal, and sometimes state, income taxes, State tax treatment varies.

A 529 savings plan owned by you is considered a parental asset on the Free Application for Student Aid (FAFSA), and could possibly reduce a student's aid package by a maximum of 5.64% of the account's value. So a smaller account for each child could be better than one larger one.

More accounts, more money?

Besides giving your child a valuable sense of ownership and inspiration, there are financial incentives to opening separate 529 savings plan accounts. The federal government treats a contribution to a beneficiary as a gift, with no gift-tax implications for amounts up to $15,000 per child annually. A married couple can contribute $30,000 per child annually. And, under a special election, they can make a one-time contribution up to five times that amount by accelerating five years' worth of investments. So the more beneficiaries, the more gifts!

There’s also the question of how much you can sock away in a 529 savings plan account. Different plans have different limits for the final account value. If you’ve got generous relatives, you don’t want to put a cap on how much they can put aside. The account limit applies for each individual child’s account. So the more accounts you have, the more gifts your children can receive.

Stay flexible

Speaking of assistance, siblings can help each other without even trying. With separate 529 savings plan accounts, you can change the family beneficiaries at any time. So, if one of your children finishes college without using all of the money in the account — maybe school was less expensive than you anticipated, or financial aid was better than expected — changing the beneficiary to a brother or sister is simple.

You can also transfer money to a 529 savings plan account named for another child or split one 529 savings plan account into two. The flexibility of a 529 savings plan is one of its best benefits.

  1. Source: "529 College Savings Quarterly Fee Analysis, ISS Market Intelligence, Fourth Quarter 2019." CollegeAmerica's fees were in the top-quartile of 30 and 18 plans based on the average annual asset-based fees for national advisor-sold and fee-based advisor-sold 529 plans, respectively. Largest by assets, according to the 1Q 2020 "529 College Savings Quarterly Data Update" from ISS Market Intelligence.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries. 

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. 

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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