When my sister had her first child—now a college senior—she set up a college savings account for him in a 529, a dedicated college savings account that offers tax benefits. Then child two came along. Then child three. Contributing got trickier as family resources got stretched thinner. “We tried to save as much as we could, but we also knew we’d have to be upfront with our kids about the need to balance savings with financial aid, loans, and scholarships,” she says.
Saving for college can be overwhelming for any family, and when you look at saving for multiple kids, the challenge grows. What’s the best strategy to keep things equitable?
How to Start Saving For College
Start Small
“I often tell parents, ‘You can do this.’ Start small. Twenty-five dollars a month per child, and you’ll start to see benefits,” says Tim Gorrell, executive director of the Ohio Tuition Trust Authority, which manages Ohio’s 529 Plan, CollegeAdvantage. Gorrell notes that Ohio’s 529 Plan can be opened for as little as $25, and ongoing contributions can be as low as $25 a month. “Setting up automatic contributions for each child’s account can keep parents from stressing about whether they are doing the same amount for each of their children,” he notes.
Starting small is an important tactic many experts recommend. Joe Messinger, co-founder and director of college planning for Capstone Wealth Partners, says it’s easy to be intimidated by the numbers—especially if a college projection calculator tells you that you need to save $800 a month. “Don’t let this get in the way. Start a saving habit as early as you can—even if it’s $25 a month. Then increase it as you can.”
Separate Accounts vs. One Big Pot
My sister has two in college and one in high school, with the two in college at out-of-state schools. “We always told our kids not to be afraid to look at places that will give you the most money. Of course, that didn’t work out for the first two, but there is still hope for my youngest!” Separate savings accounts were important to her, to ensure she kept things equitable.
This strategy offers other benefits to parents.
“I’m a big advocate of creating buckets for each child,” says Messinger. “There are no extra fees, and with a 529 Plan you get state income tax benefits.”
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Every state is different, but Ohio residents, for example, can take advantage of an income tax deduction of up to $4,000 per child per year. The accounts also grow tax free at both the state and federal level. “Even though each account is set up in a child’s name, you have the flexibility to roll those funds over to another child if needed.”
Family Can Help—And See Tax Benefits
It’s not just parents who can experience college savings tax benefits: Grandparents or other advocates in the child’s life can, too. Gorrell explains that, in Ohio, as long as the contributor is a resident of the state and contributes directly to a child’s Ohio 529 account (not writing a check to the parents), they can also claim this deduction. This is on top of what the parents may claim. For example, maternal grandparents can claim up to $4,000 per child and paternal grandparents can claim up to another $4,000. (If you’re so lucky!) “We really encourage families to talk about this; it’s a smart way to gift a child for birthdays and holidays with something that will last long beyond a toy or tech device,” Gorrell says.
The children benefit, too. “If the beneficiary knows that there is a savings account set up specifically for life after high school, there is a higher likelihood that they will strive to utilize higher education,” Gorrell says. And less college debt could be the best gift ever.
