I have a 529 college investment question.
Facts:
I have a 4 year old for whom we've established a 529 account about 4 years ago. We also have a 1 year old that we have not started an account for. We also are thinking of having a third kid.
The 529 account has been doing great. We make monthly contributions.
Question:
Should we simply increase our monthly contributions with the goal that this one account would benefit all 2 (maybe 3 kids) OR should we set up separate accounts for each kid? Or does it matter? I could foresee a difficulty of dividing the money in the account between the kids (but I think that would be a good "problem" to have.)
Thanks,
Andy
I'd recommend at least 1 account per kid... I say at least because you could have a matrix owner system in place (Dad>Kid acct1 Mom>Kid acct2) the main reason is just in case one of them doesn't go to college you would find it easier to close out that plan. Below is a more elaborate strategy.
Elaborate Holdings for 529
Two accounts $10,000 in each, you want an 80/20 Stock/Bond mix (for example)
This would equate to total holding of $16K Stock $4K Bond
- 529 #1 Owner Dad, Beneficiary Daughter - holds Bonds/Stocks 60/40 ($6k/4K)
- 529 #2 Owner Mom, Beneficiary Son - holds Bonds 100/0 ($10K/$4K)
By creating these substantially different individual holdings (that add up to the same total risk tolerance of 80/20) you can make the accounts act '
differently' based upon the market.
Note the only reason that I propose the following is to give you better 'options' when it comes to canceling a 529 account and pulling out the money without penalty. IE should you budget for all kids, but then one doesn't need it.
If, on the other hand you just had vanilla:
10K in each, 80/20 in each... both accounts would move in exactly the same way when the market moves. There wouldn't be an opportunity here to 'back out' of the losing investment, unless everything just dropped. The purpose of holding a mix of assets is that to some extent there should be some inverse correlation - IE when your stocks drop your bonds raise... how much that happens in current conditions is debatable, but the fact is if you structure accounts strategically you allow for the opportunity.
FWIW I have maybe 5% bonds in my 529 plan, but when I contribute to my son I will fund:
Mom>Son (Stock fund 1)
Dad>Son (Stock fund 2)
And have different holdings in each. (I'm just at funding Mom>Son for now and will add the second fund this year).
Note that the ability to change beneficiary within the immediate family means that you aren't giving a child an inferior portfolio for growth, you'd simply swap it over to them.