Need a college savings strategy

[jennilynn]

I’m definitely way behind on saving for college but am finally comfortable with our other savings (emergency fund, mine and DH’s retirement). DS1 is 12 and in 6th grade, DS2 is 10 and in 5th, and DD is 7 and in 2nd. Fairly certain a 529 is our best bet. First question is how many? Should I have one for each child, one total, or two (for the older two, assuming they’ll be in college at the same time.) That scenario makes me feel like I’m short changing DD but in reality I’d be saving some from one or both accounts for her once I have a better idea of what they’ll each need. And, second, I should be saving more $ for DS1, since he’ll need it first, right? That feels wrong because I’m used to splitting everything, but I’m not sure equal is the way to go eithet. WWYD?


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[georgiegirl]

It depends on your state’s tax benefits for a 529 and how much money you plan on putting in. In my state, each parent can put in about 3,600 (it goes up every year, and I can’t remember the exact amount) per kid free of STATE tax. So we set up two accounts per kid (one in my name and one in DH’s name) so that we could get the max amount of tax benefit.


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[klwa]

I agree with PP that first you need to find out what the tax implications are for setting up the accounts. I have a separate one per child, but you need to look at what works best for you.

If you do separate accounts, so far as amounts, looks like your first two kids are only a year apart in school, right? So, setting it up where 3/4 of the money goes into those two accounts and 1/4 goes into the youngest for now seems fair. Remember that at any time, you can change how much goes where, so not only does the youngest have the most time to grow, you can also increase her contribution as you quit paying into the older kids' accounts. It's also not a huge difference between 1/3 and 1/4, but should be enough to jump start the older two's accounts. And, at least in our state, you can transfer money between the accounts if you notice that anyone starts to get out of line from the others.

[KrisM]

We started our 529s at about those same ages. We went with 3 accounts, just to keep it separate. Michigan allows a deduction of $10,000 total, so the number of accounts didn't matter for that. I put the same amount in each kid's account and do the age based investments. We don't have a lot saved at this point, but the act of saving will help a lot since once DS1 starts, we can use that money to pay instead of continuing to save.

[Liziz]

I'm pretty sure 529s vary dramatically by state, so definitely get some state-specific advice! In my state, I'm fairly sure only one child's name can be on the account. It can be transferred between children, but I'm not sure if you'd be able to pay for 2 children's tuitions out of the same one account -- so you may want one per child as it looks like the older 2 will be in college at the same time.

I'd also suggest you decide on the monthly amount you're able to contribute right now, and then play with a college savings calculator to figure out how to divide the $$$ up between the three children (for now). If your ultimate goal is to save a similar amount of money for each child, you can plug in some assumptions and see where you'll be projected to end up, then tweak your input and calculate again, until you're in a place you're comfortable with. It's definitely not at all wrong to contribute unequally at this point - unequal contributions now will ultimately mean more equal final amounts available to each child, vs. if you contribute equally now, you will definitely have a very unequal final amount for each child.