Do I need a 529 plan for each child?

As you think about your children’s futures, you might find yourself wondering what kind of adults they’ll become. What will they study at college — and how will you pay for it? This can be a big concern for parents with multiple children. If you’re using a 529 savings account to save for college, do you need a 529 for each child? How many 529 plans can you have? Should you open only one and then use the funds for each child as needed?

Here, we’ll explore the pros and cons of having a single 529 savings account intended to be used for multiple beneficiaries, that is for more than one of your children.

Understanding 529 plans

First, here’s a little background on 529 plans. They can be a great way to help you save for college. There are two types:  A 529 education savings plan and a 529 prepaid plan. Learn more about them in this article about the 5 ways to pay for college. Today, we’ll focus on the 529 education savings plan.

Is one 529 plan enough for multiple beneficiaries?

That depends. As with most financial decisions, there are pros and cons depending on your situation. By the end of this article, you should have enough information to help you make the best decision for your needs. This article also explains why USAA believes in opening separate accounts — one for each child or beneficiary. The list of beneficiaries can include more than just your children.

Pros of having a single 529 plan for multiple beneficiaries

Tracking is easier

If you have only a single 529 account for all your education funds, you only need to keep track of one. This means less paperwork and potentially lower fees. For example, if your 529 provider charges $15 per year just to maintain the account, you would be paying $15 for one account or $30 for two.

Meet funding minimums

Another benefit of having just one account is that it may be easier to meet account minimum funding requirements. For example, if the 529 plan you are interested in has a $250 minimum investment and you only have $250 to invest, you can’t open two accounts and put $125 in each.  However, some account minimums are lower. For example, the Texas College Savings plan minimum is only $25.‍ ‍ ^{See note 1} Many providers reduce their investment minimum requirement if you sign up for monthly automatic contributions.

The cons of having a single 529 plan for multiple beneficiaries

Now, let’s look at some cons of just having one account. Keep in mind that these cons aren’t about having a 529 account in general, but whether one account is enough when saving for multiple beneficiaries.

If the 529 is a custodial account — that is, an adult has control of it until the student is at least 18 years old, you can’t change the beneficiary. So, you can’t use the funds for another child. This might be fine if you only have one child, but if you have more, you’ll need more than one 529.

Having just one account also makes it harder to separate funds. What if a grandparent gifts $500 each year to both grandchildren for their education? If all the funds are combined in one account, how do you ensure that you don’t accidentally spend money meant for one grandchild on another? Doing so could lead to family squabbles, especially if one child needs to take out a loan to cover college expenses while the other doesn’t.

But, changes in the Free Application for Federal Student Aid, or FAFSA®, form make it advantageous for grandparent owned 529 plans.  Distributions from grandparent owned 529 plans are no longer reported as untaxed student income on FAFSA. Therefore, a grandparent can open a 529 account and put the child as the beneficiary. It won’t affect their financial aid eligibility.

Here’s another con: A single 529 account can only have one beneficiary at a time. If your kids are at similar ages and might be in college at the same time, this will create difficulty in using the assets for each at the same time. While it’s true that you can change the beneficiary, it does create extra paperwork and difficulty if the tuition bills are due at the same time.

Also, if all the funds are in one account, you can’t tailor your investment strategy to match the child’s timeframe. For example, let’s say you have children whose ages are far apart, like me and my brother. I’m nine years older than him. When I entered college at 19, he was only 10. In that scenario, my 529 plan would be in conservative assets since I’d be using the money and I wouldn’t want to take on much risk.

On the other hand, my brother’s 529 plan would invest more aggressively since he’d still be eight to nine years away from needing the funds. We’d have different risk tolerances for this account because of our different stages in life. A parent in this situation would have one child looking for growth and the other looking to preserve the money. If the funds are in two separate accounts, this frees up the parent to tailor the investment portfolio to each child’s timeline.

One versus two accounts can also affect financial aid. The FAFSA® form requires that you report parent- and student-owned 529 plans as assets, which can impact financial aid to differing amounts. As of the 2024-2025 application season, the parent only needs to report 529 accounts for which the student is the beneficiary. Here’s an example of how that works:

Let’s say that you’ve saved $100,000 for the education of your two children. If those funds are in one account valued at $100,000 with child 1 as the beneficiary, you will report $100,000 as 529 plan assets when child 1 fills out their FAFSA® form. If you split the funds between two accounts, $50,000 for child 1 and $50,000 for child 2, child 1’s FAFSA® form will only report $50,000 in 529 parental assets.

This can impact the amount of financial aid offered because more assets are available to pay for education. Learn more about filling out FAFSA® by checking out USAA’s how to apply for college financial aid article.

Mixing and matching savings strategies

Your family might be like mine — you likely won’t be able to fully save to pay for all your children’s college expenses. You will probably rely on a mix of strategies to help pay for college. You might save some in a 529 plan, use some other savings, apply for scholarships, and then cover the rest with a loan.

No matter what you decide, USAA is in favor of opening separate accounts for each child. But it’s a decision you need to make for yourself and your family because each financial situation is different. But overall, being able to manage your investment strategy based on the child’s time horizon and keep money for each child separate are the main reasons to open separate 529s for each child.