#43707 - 08/15/08 07:42 PM
Why separate accounts?
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JohnC
Registered: 08/15/08
Posts: 1
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As near as I can tell, everyone seems to open a separate 529 account for each child/beneficiary. Why is that? Wouldn't it be easier to manage if there were one account with all children as beneficiaries? And don't most spend and transfer funds based on need and circumstances instead of providing each child with however much happens to be in the account with their name on it? The only downside I see to a single account is that you'll reach the contribution limit sooner - though I'm not certain if it wouldn't be better to shift additional savings out of a 529 at that point just to ensure against the potential for excessive college savings. So, what am I missing? Why do most people use separate accounts? And is there any compelling reason for not using a single account?
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#43709 - 08/16/08 10:43 AM
Re: Why separate accounts?
[Re: JohnC]
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TexasCFP
Registered: 08/23/01
Posts: 765
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A few limitations:
1) Since you can only make one investment change per year it might make desired changes to portfolio more difficult to manage;
2) With different time horizons some might want different asset allocations which they prefer to manage in different accounts;
3) If there is any overlap in college attendance you'll be forced to switch beneficiaries every time you make a distribution- far more hassle than opening a new account one time.
Others may chime in with a few ideas but these are a start.
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David Hollands, CFP
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#43714 - 08/17/08 04:08 PM
Re: Why separate accounts?
[Re: TexasCFP]
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anonymous
Registered: 03/29/05
Posts: 2003
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JohnC,
You ask a good question. In most cases, it doesn't make much of a difference. There are two main reasons that I personally see that people open up an account for each child.
1) This allows them to maximize their tax deduction (depending on the plan).
2) They want to keep Jack's money separate from Jill's.
If your kids aren't in college and seperate plans don't maximize tax deductions and you don't care about keeping the money separate, there is probably no reason to have multiple accounts.
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#43715 - 08/18/08 03:24 AM
Re: Why separate accounts?
[Re: anonymous]
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Drew
Registered: 01/09/00
Posts: 2532
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Tax code says only one beneficiary per account.....generally its easy to split down the road--but the administrative details can vary by plan---
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Drew
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#43724 - 08/18/08 09:24 AM
Re: Why separate accounts?
[Re: Drew]
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Dopps
Registered: 01/23/02
Posts: 1190
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Another reason for multiple accounts--gifting. Each parent can gift $12,000 per year per recipient and stay within their annual gift exemption (no gift tax, no eating into their additional $1 million lifetime exemption). Because of the one benefeciary per 529 account rule, each parent is thus limited to contribute $12,000 annually to the "family's" 529 pot, if using only one 529 account (or $60,000 if use 5-year averaging). Use two 529's, and you double this limit, and so on.
Be a sport and spend the extra $10 or $20 annual account fee to maintain an addtional 529 account.
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#43753 - 08/22/08 07:07 AM
Re: Why separate accounts?
[Re: JohnC]
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tjkohler
Registered: 06/24/04
Posts: 519
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I, for one, feel quite the opposite. I don't see any reason NOT to separate them and all the reason to separate.
Most plans do not charge per account, and that would be the only reason, thus it's not an issue.
How much my kids need will be based off of their hard work and which school they want to go to. I won't penalize the younger kids because my older child wants to go to a higher priced school than they do.
Each child will be given exactly the same chance. Each investment will be based on their age and when they will need the money. None will ever feel like they recieved more or less.
Gifts can be made without worry of going over the $12K/year mark, even though I will never be able to come even close (currently $3.9K a year for three kids plus whatever Grandparents want to put in).
I would love to hear even one reason to consolidate.
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#43755 - 08/22/08 11:30 AM
Re: Why separate accounts?
[Re: tjkohler]
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anonymous
Registered: 03/29/05
Posts: 2003
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"I would love to hear even one reason to consolidate."
It's easier than opening up a second account. I give all of my clients a choice. I explain the pros and the cons. About half want separate accounts. The basic reasoning behind those who just keep one account is that there is no reason to have to decide now which kid gets how much money.
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#43756 - 08/24/08 07:19 AM
Re: Why separate accounts?
[Re: anonymous]
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Stoney
Registered: 11/16/06
Posts: 13
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I'm in the same boat as many others it seems.
Have a 21-month old daughter that we set up in a 529 just after she was born and expect another child in early March. We're currently trying to decide whether to keep the funds combined in one account for the time being and split it down the road or just separate them from the start. We're both medical professionals, so it's slightly more likely that our kids would be attending college but you just never know.
The big advantages of separating, IMO, are: A) keeping each child's money as their own when it comes time to choose what they'd want to do to further their education and B) better allocating according to their ages. Yes, they'll only be a couple years apart, but that will make a slight difference in my allocation thinking as high school nears completion.
The big disadvantages of separating, IMO, are: A) the possibility that one goes to college and the other doesn't and B) that our daughter already has just over $10k in her account that she'd "lose" some to her sibling (not expecting as much family funding this time around).
Leaning towards opening a 2nd account for child #2 as I'd assume that we'd be able to combine the funds or just transfer beneficiary, if, down the road, one seems destined for college and one chooses another route.
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#43758 - 08/24/08 06:05 PM
Re: Why separate accounts?
[Re: Stoney]
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anonymous
Registered: 03/29/05
Posts: 2003
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It's easy to split in the future if you just have one now. It's easy to combine in the future if you have two and want to go to one.
The bottom line is that in many cases, it simply doesn't matter if there isn't a state tax break.
"The big advantages of separating, IMO, are: A) keeping each child's money as their own when it comes time to choose what they'd want to do to further their education and B) better allocating according to their ages. Yes, they'll only be a couple years apart, but that will make a slight difference in my allocation thinking as high school nears completion."
I'm curious what do you do when it comes to paying for school. Do you say, "Oh, I'm sorry Judy. Tim's investments did better so we are willing to send him to a better school."
Personally, unless the kid contributes the money himself, I'm going to make the decison on who gets how much in the future and it won't be dependent on the beneficiary on the 529 plan today.
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#43778 - 08/26/08 09:13 AM
Re: Why separate accounts?
[Re: anonymous]
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Stoney
Registered: 11/16/06
Posts: 13
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Thanks Anon. OK, say we keep it in one account for ease of tracking and both happen to go to college. How stringent are the current federal rules on transferring a portion to another beneficiary?
If we had a decent bankroll in the 529, for example maybe $100k, how much of a headache would this be? I'm assuming it'd still fall into the $12k/yr, or whatever the limit is at that point in time???
Sorry for all the questions, but I'm really torn as to which option to go with for now.
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