If you have more than one child, you might be wondering if you should open a 529 plan for each child or just one 529 plan. You may also wonder what happens if there’s money left over when one or all your children are out of school.
First, you should definitely open a 529 plan for each child. You can only list a single beneficiary on each 529 plan account, and your life will be so much easier when it comes time to pay for college if the name of the beneficiary matches the child whose bills you are paying.
But what if you end up with too much in one account and not enough in the other?
Good news—it’s really easy to move money between family members—and not just between siblings. If the new recipient of the money is a "member of the beneficiary's family," as defined by the IRS, you’re good to go.
Luckily, the IRS has a pretty expansive definition of "family."
Straight from the IRS (bolding is mine, and I've added some comments):
The beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary:
1) Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them
Look at that, you can sit tight and wait for grandkids to arrive on the scene.
2) Brother, sister, stepbrother, or stepsister
Moving money between siblings is a popular choice. Consider this if you're in a state that awards tax deductions on a "per-beneficiary" basis. Not sure if you are? Our AboveBoard College Savings Guide will tell you.
3) Father or mother or ancestor of either
Feel like going back to school for fun during retirement? Maybe get that Master's degree in something you love? Awesome, you can use any leftover 529 plan money.
4) Stepfather or stepmother
5) Son or daughter of a brother or sister
Nieces and nephews are included.
6) Brother or sister of father or mother
Aunts and uncles are included, too.
7) Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
Feel like giving money to your kid's mother-in-law? You can if you want.
8) The spouse of any individual listed above
9) First cousin
So if it turns out that one child gets a full scholarship (a parent can dream, can’t they?) while another pursues not just college but also an MD/PhD, you can fluidly transfer your family’s 529 plan savings to whoever needs it.
Or if you find that money is left over after you have supported your child(ren)’s higher education, rest assured that you can sit tight and wait to help out future grandchildren (a parent can dream, can’t they?) or spread the wealth to cousins or other family members.