How to Accumulate and Allocate College Savings for Multiple Children
Covering the cost of a college education for your first child is a daunting enough prospect. But, since the birth of their sibling(s), you may be feeling even more overwhelmed. Not only do you need a boatload more money, you must consider fairness, your children’s individual preferences, and the best place to stash the cash until it’s time for use. Don’t worry, though, we’ve got some tips to make saving for college when you have multiple children a little easier.
How to raise the money
First and foremost, start saving as early as possible. You have a large savings goal to reach and the more years you have to squirrel money away, the easier it will be on your budget. Then, be sure your funds are in a position to grow. A savings account at your local bank may feel safe, but the value of the money in it will be eroded by inflation over time. Instead, consider saving in a 529 plan (more on that later), a Roth IRA, or a brokerage account where the funds can be invested and benefit from compound interest.
Finally, remember that you’re not alone in this quest. Ask relatives and friends to help by pitching in cash in lieu of other gifts for your children. And, have your kids put some skin in the game. If they do chores, babysit, or take on a part-time job, some of that money can be put towards their education.
How to be fair
It’s only natural to be concerned with fairness -- you want to help all of your children equally. The best way to do this? Determine the total amount of money that you can afford to give your kids for college. Then, divide that amount by the number of kids that you have. That’s the nest egg that each child will receive to cover their schooling.
For example, if you decide that $100,000 is the total amount you can afford to give your children, and you have 4 kids, each child will receive $25,000. Where your child decides to attend college or what they choose to study becomes irrelevant. They get what they get and covering the rest (if applicable) will be up to them. Be sure to communicate this information to your kids as soon as they’re able to understand it. That way, they’ll see that you’re being fair and will have time to create a plan to cover any shortfall.
How to stash the cash
Each savings vehicle has its pros and cons. But, opening a 529 plan account for each of your children might be the optimal route. While benefits vary by state, 529 plans can be a tax-advantaged way to save and invest for your children’s education. You may be able to deduct contributions to your accounts on your state income taxes. In addition, many states allow you to withdraw growth on your funds tax-free if the money is used to cover qualified education expenses.
So why open an account for each child? While having multiple accounts may seem like it would complicate your financial life, the reverse is actually true. That’s because a 529 account can only have one beneficiary listed at a time. So, if you have multiple children attending college at once, withdrawals could become extremely tedious as you’ll have to keep switching the beneficiary when you need funds for different children.
Related reading: There are actually several good reasons why you might want to open a 529 plan account for each child.
Helping your children cover the cost of their education is a wonderful gift -- and no easy feat! Accumulating and allocating those assets can be a lengthy and complicated process. Hopefully, this article has addressed some of your concerns. Happy saving!