How To Save For College For Multiple Children

Saving for college can be hard for parents with just one child, but adding more can make it seem more difficult. Beyond simply finding the money to contribute, parents have to deal with questions about fairness, the uniqueness of each child, and more.

Many times these additional thoughts and concerns simply make parents not want to start the process of saving for college, even though they know they should.

Let’s stop the analysis paralysis today and look into how to practically save for college when you have multiple children.

How To Save For College Based On Mindset 

There are two major mindsets on how to save for college – leverage a 529 savings account, or save your own money and pay for college out of pocket.

I find that when people have just one child, it’s really easy to see how a 529 college savings account could make sense. It’s a single account, it’s easy, and the one child can use it when they’re ready.

But once a second child (or more) comes into the mix, I see more and more parents wanting to avoid having individual accounts per child. They’re afraid fairness, or they don’t know what to do if one child doesn’t go to college. As such, they tend to divert to saving money in their own accounts versus a dedicated education savings account.

This can be a costly mistake, as we’ve covered the reasons a 529 plan is a great savings tool before. But let’s look at the issues, and maybe you’ll see how you can make a 529 plan work for multiple children.

Handling The Fairness Issue 

When it comes to saving for college for families with multiple children, the #1 issue I always hear brought up is fairness. Parents (usually mom) are worried about the fact that one child might have more saved for college than another child.  They worry about how the child with less money in their account might feel.

It’s a valid concern. Just think – if the first-born child had a 529 account opened for them, and the account grew and performed well, they could accrue a lot more money in their account compared to their younger siblings.

And the math is there to support this – since stock market returns fluctuate every year, even if you contribute the same for each kid, the growth can create wildly different outcomes over 15-20 years. Wonder how much could be in a 529? Here's how much could be in a 529 by age.

So how do you handle it? The short answer is that you make it fair.

The long answer is you really have to remember how a 529 plan is structured. When you open a 529 college savings account, the account is actually owned by someone (typically the parents) for the benefit of someone else (typically the child). Since mom and dad still own the money in the account, and it’s for the benefit of the child, you simply have a conversation about how much you’re going to pay for school for your child, regardless of how much is in any child’s account.

Whoa, whoa – so you’re saying that the 529 college plan isn’t for the kid to go to school? No, that’s not what I’m saying at all – what I am saying is that the balance of the 529 plan should be one part of the conversation on how much the parents should help pay for college.

I see this typically play out in two ways:

1. Parents give a set amount per year (say, we can contribute $5,000 per year to your college tuition)
2. Parents offer to cover the cost at a specific school (say, we can cover the tuition at an in-state school)

The money saved in the 529 can play a huge role in funding what they parents agree to – and they should do the same for each child, regardless of how much money is in each of their 529 plans.

So, if Child A has $20,000 in their 529 plan, and Child B has $18,000 in their 529 plan, and the parents offered to help with $5,000 per year for 4 years – they saved enough for Child A, and they should come up with $2,000 for Child B.

I’ve found this strategy to be fair, but like anything money related, having conversations about who’s paying for college could be tough. Parents need to be honest with their children about what they can afford to pay, and what they were planning to do. The earlier the better – so that everyone involved has clear expectations. 

What If One Of Them Doesn’t Want To Go To College?

Another common scenario when saving for college for multiple children is that each child is unique. Even harder, you won’t really know who they are until they are older. If you start saving when they are really young, and have a bunch saved, what do you do when one of them doesn’t want to go to college?

There are variations on this as well – what if one of your children becomes a star athlete and gets a free ride? Or what if they really just want to go to vocational school and you saved way too much for what they need?

Well, there are a lot of options here, and while none are perfect, it’s not like you “lose” the money you saved.

When a child isn’t going to use their 529 money, you have a couple of options:

1. You can transfer the 529 to another child
2. You can withdraw the money
3. You can wait and see

With a 529 college savings plan, you can change the beneficiary of the account to be used for another child (or anyone really). If one child isn’t going to college, for whatever reason, you can simply use the money to pay for college for someone else. That might not sit right with some people, but it’s a viable option. If you’re considering this path, I highly recommend getting the buy in of the child first.

You can also always withdraw the money. If you’re pulling out the money and not using it for a qualified education expense, you will pay a 10% penalty on top of taxes on the gains. However, if you just want the money out, it can make sense to do this.

Finally, you can just wait and see. I prefer this choice, because you never know how life will pan out. Maybe your child skipped college to join the military, but 8-10 years later, wants to finally go back to school.  Or maybe you and your children agree to use the 529 for grandchildren way in the future.  The big thing here is, there is no rush. You can simply let the money sit in the 529 until you make a decision on how you want to proceed. 

Where To Find The Money To Save

The final major challenge I hear from parents too often is – “how can I even save for college for one, let alone two/three/etc”.  Look, finding money to save for college is tough. That’s why I highly recommend starting small when saving for college. You really don’t need to find huge amounts to get started.

My single favorite strategy for saving for college is asking friends and family to provide a contribution to the 529 in lieu of gifts for birthdays and Christmas. Parents love to give toys and junk because they are a little selfish – they want to see the kids happy with the gift they gave them.

Our rule is that grandparents (and other family members) are only allowed to give one toy or gift. The rest should go to the child’s 529. That way, grandparents can still get some joy of the child opening a gift, but they are also helping save for college down the road. Plus, every parent realizes that their child doesn’t need 10-15 new toys every birthday and holiday. Most of that goes to waste.

Saving For College For Multiple Children Is Possible 

The bottom line is that saving for college for multiple children can be done, and it still makes sense to use a 529. Setup an account for each child at a 529 plan like California's ScholarShare, contribute what you’re able to, and be fair about it when it comes to actually paying for college.

Yes, every child is different, and every situation is different. But that doesn’t change the fact that you should start small and begin saving for college as soon as possible – for each of your children.

If you are a parent of multiple children do you have any creative tips for saving for college?