College investing for a kid who doesn't yet exist...

[Done by Forty]

MMMers...


My wife and I are interested in getting a head start on saving for our future children's college.  We figure letting compound interest work for us is a no brainer, especially if the earning can grow tax free.

But, as the child (or children) are not yet conceived, I don't think an ESA is possible (but if you know of a way, please let us know).

That leaves a 529, which I believe I can open initially with me as the beneficiary, and then change it to my child once she is born.  Has anyone tried this?

Also, would we be able to 'split' the 529 to two children, or is better for us to replicate the above with my wife as the initial beneficiary?

Finally, there seem to be many states to choose from, though Arizona's would seem to make sense for now for some state tax benefits.  Are there certain states (or, possibly, prepaid tuition plans) you all would recommend?

Thanks, as always.

[unplugged]

Not sure if this helps. Yesterday radio host Dave Ramsey took a call from a parent with a 529 case. The womans child had the very unusual situation where her  college was 100% paid for. Dave said that sort of thing is rare but does happen. The woman is stuck and there is no way to get around the 529 rules. The $ is totally unusable in the 529.

[Done by Forty]

Well, it's usable, but there are tax and penalty consequences (on the earnings).

[Lagom]

You can't use the same 529 to pay for two individual's expenses at the same time, but I believe it's easy enough to change the benificiary, so it wouldn't be a huge deal to use just one plan if your kids are a few years apart. The best state to use is your own if it offers a tax break on contributions. I know Illinois does, which is why I am using their 529 option when the time comes, since I am a resident. If your state does not offer that benefit, I suppose you should just go with a state that has the best investment options (e.g. index vs. managed funds).