Does Clark Recommend a Separate 529 Account for Each Child?

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Money expert Clark Howard extolls the virtues of 529 plans every chance he gets.

You put money into those plans and invest it, where it grows tax-free. And then you get to spend it tax-free to pay for your child’s education.

The law just got even more friendly toward parents choosing to make use of 529 plans, which I’ll write about later in this article. But there are a few key points to make sure you get right so that you can get all of the intended benefits.

Do I Need a Different 529 Plan Account for Each Child?

Is it OK to fund a single 529 plan for multiple children? Or do I need a separate 529 plan account for each child?

That’s what a Clark listener recently asked.

Asked Ryan in Tennessee: “I’m 33 and have two children (3 & 1). My current investment advisor recommends one 529 account for the simplicity of managing it and changing the beneficiary as withdrawals are necessary.

“With the 2024 tax law change of converting unused funds over to Roth IRAs, we plan to use a 529 account as a vehicle to both save for college and jumpstart our children’s retirement savings. Do you recommend one 529 account for each child?”

The answer to this one is clear in Clark’s mind.

“I hope there was just a misunderstanding in what you heard from the advisor,” Clark says. “I have never, ever heard an advisor recommend a single 529 account with the intended purpose of being for more than one child.

“That is not — I don’t want to say it’s lame advice — it’s not standard. Let’s leave it at that.”

Avoid Commission-Based 529 Plans and Only Buy Direct

If a financial advisor is pointing you toward a 529 plan, you need to make certain that it’s a direct-sold plan.

“You never, never, ever, not ever, without exception, never buy a 529 account through a human being. You only buy direct,” Clark says. “Direct-sold 529 accounts. No commissions. And the overall ongoing expenses – far, far, far lower.”

If that sounds complicated, I publish and update a list of the best 529 college savings plans every year. Make sure to pick from one of the best plans on that list and it will be sold direct as Clark wants you to buy.

“Never buy a 529 plan – never – involving a salesperson,” Clark says. “Because the commissions are so bad.”

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New Laws Remove Risk From 529 Plan Investments

Let’s go back to the new retirement and tax rules that Ryan alluded to in his question.

Until now, the big risk of investing in a 529 plan is that your child doesn’t go to college at all. Or that your child gets a full scholarship and doesn’t need the money you’ve earmarked for education expenses via the 529 plan.

In that case, you’d have to find another qualifying family member who does need money for college. Or you’d have to pay penalties to take the money out and spend it on something other than education.

But starting in 2024, you can execute a back-door Roth IRA by shifting up to $35,000 from a 529 plan.

“It is a tax-free transfer of wealth from one generation to another,” Clark says. “As today’s law stands, $35,000 max can be put in over time that can be moved from a 529 plan to a Roth.

“It is a fantastic thing because people have been undersaving in 529 plans because they’re worried a kid doesn’t go to college, gets scholarships or doesn’t need all that money for whatever reason at college. Now you don’t have to worry about those what-ifs at least up to $35,000.”

Final Thoughts

Want to invest in a college education for more than one child? Open a separate 529 plan for each of them, Clark says.

“The advice to have one plan for two children? Uh-uh!,” Clark says. “One plan for each child. You own. They’re the beneficiary.”

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