Can you have multiple 529 plans? Yes, and there are a few good reasons to consider it.

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529 plans are one of the top five ways to invest in your kids’ future. Each 529 plan is tax-advantaged, meaning your money will grow tax-free, as long as you ultimately use the funds for a qualified education expense.

And yes, you can have multiple 529 plans! It’s more common than you think.

Originally, 529s were used to cover future college expenses, but now cover much more, including K-12 tuition and certain apprenticeship programs. Qualified expenses include tuition, supplies, and room and board. 

A quick pro tip before diving into the reasons why you should consider having multiple 529 plans. You don't have to stick with your state of residence's 529 plan. I reside in North Carolina but opened a 529 for my daughter through the State of New York.

Benefits of Multiple 529 Plans

There are many benefits of having multiple 529 plans for the same beneficiary. Here are just a few:

Investments Based on Your Family’s Needs

Being a dad, I love a good analogy (at the risk of being lame). Think of investment diversification as planting a garden with a variety of fruits and vegetables. Each has its harvest season, and if cultivated properly, can feed your family for the full year.

The same thinking can apply to investment strategies, especially educational investments such as 529 plans. Having multiple 529 plans allows you to tailor your savings strategy to your family’s needs.

529s are amazing investment vehicles, but most plans only offer a limited number of investment options. Offerings are typically balanced funds which include a combination of stocks, bonds, and mutual funds.

These funds are balanced according to risk. For example, more aggressive funds will carry a higher balance of future-forward stocks (typically technology). 

You need to consider your family goals as well. If you’re planning on using 529 funds to pay for K-12 tuition along with saving for college, those have two completely different time horizons. Tapping into multiple 529 plans will allow you to separate the funds and invest them differently. 

Potential Tax Benefits

Many states offer tax deductions or credits for contributions to 529 plans. These can vary quite a bit though, and not all states are created equal when it comes to this type of tax benefit.

Taxation in general is quite complicated and I always recommend consulting with a tax professional, but there are some great resources out there that summarize the tax deductions per state. 

If you live in a state with tax deductions or credits, make sure to take advantage! Typically the tax benefit is based on the number of accounts of beneficiaries versus the individual taxpayer. This means that depending on the state and number of kids or accounts you have, you may be eligible for a decent-sized tax deduction or credit

There is a bright side if you live in a state that doesn’t offer state income tax benefits. From my perspective, this removes the feeling of obligation to stick with your own state’s plan. Since my state doesn’t offer state income tax deductions or tax credits, I focused my selection strictly on investment fund performance and fees. 

I ultimately landed in the State of New York, which has been a great experience for the past few years. Plus, if I ever decide to move to New York in the future, I can tap into their state income tax deduction. At the time of this writing, it is $5,000 for single filers and $10,000 for joint. Not bad. 

Two Downsides of Multiple 529 Plans

There are only two downsides to having multiple 529 plans.

The first is having to keep up with additional accounts. As a toddler parent, I have way too much going on as it is. My preference is to keep it as simple as possible when it comes to 529 plans and stick with just one account. This is just me though - I know other parents who have no issues with several accounts.

The second downside is additional fees. Depending on the account setup, they may charge a flat fee for account maintenance. Be mindful of this when setting up multiple 529 plans. The last thing you want to do is stack on too many unnecessary fees as it eats into your earning potential.

The bottom line

Amazingly, you are putting money aside for your child’s future education expenses, it’s a powerful way to give them a head start and create generational wealth. 

When it comes to deciding if you should have multiple 529 plans, it all comes down to your situation. There are many ways to save for the future, 529 plans are simply a tool in the tool kit. Tailor your strategy to the individual child if you can - your goal should be to help fund their dreams and aspirations.