Managing Multiples: College Financing Strategies for More Than One Child

Navigating college funding for multiple children can be challenging, especially if you don’t qualify for financial aid or needs-based grants. Here are some strategies to help you manage the multi-kid college crunch.

Start Early

When your kids are young, college seems like a distant concern. However, parents who have put multiple children through higher education often emphasize one key point: Start early. “Even if it’s a modest amount, start saving immediately,” advises Griffin Geisler, a wealth strategist at RBC Wealth Management–U.S. “Open up an account as soon as possible.”

Develop a Comprehensive Plan

A well-thought-out plan is essential for funding your children’s education. Here are some strategies to help you pay for your kids’ college-related expenses:

Do the Math Up Front

While there are many websites that provide average college costs, Geisler recommends that parents do the math themselves. “Calculating the costs personally gives you a real number and an understanding of where it came from,” he says.

Family history can guide you on the type of education your children might pursue, especially if it involves private institutions or Ivy League schools. Use your alma mater as a reference to estimate tuition, room and board, books, fees, and other potential costs.

“List everything based on your background, add it up, and then inflate that amount by five percent annually,” Geisler advises. This calculation will give you an idea of the nest egg needed when your child turns 18.

Utilize 529 Plans

529 plans are the most common college savings tool in the U.S. Contributions grow tax-free, and withdrawals used for qualified education expenses are tax-exempt.

Geisler points out that 529 plans have caps ranging from $300,000 to $550,000 and are particularly beneficial for families with multiple children. If one child’s 529 plan has leftover funds after graduation, the remaining amount can be transferred to a sibling.

However, contributions to a 529 plan count towards your annual gift tax exclusion, which may not be ideal for those facing estate tax concerns. High-income families who can pay for college through cash flow might want to use their gift tax exclusion for more strategic purposes, like gifting shares of a family business or appreciating property.

Grandparent Contributions

Grandparents often wish to contribute to their grandchildren’s education through 529 plans. While they can gift up to $18,000 per person per year tax-free (or $36,000 for married couples), there’s also a provision allowing up to five years’ worth of gift tax exclusions upfront. This means a married couple could gift up to $180,000 to one beneficiary’s 529 plan, potentially covering the entire cost of college. However, this would prevent further gifts to that beneficiary for five years.

Different Strategies for Different Times

College planning for multiple children requires adjusting your strategy based on when you’ll need the funds. Geisler divides the investment strategy into three categories: kindergarten to grade six, grade six to college, and the college years.

1. Kindergarten to Grade Six: Long-term investment strategies and aggressive savings.
2. Grade Six to College: Shorter time horizon, continued funding of 529 plans, with adjusted investment objectives.
3. College Years: Use of simple savings accounts for liquidity, similar to retirement planning.

The Sibling Factor

Even if you don’t expect to qualify for financial aid, filling out the Free Application for Federal Student Aid (FAFSA) is advisable. The form is due in January of the student’s senior year of high school.

Geisler emphasizes the importance of parents discussing college costs and contributions with their children. This includes the costs of studying out-of-state or abroad. Managing multiple kids in college also involves managing expectations and teaching financial responsibility. “They’re teaching the children something very valuable,” says Geisler. “You’ve got to live within your means.”

Starting early, calculating realistic costs, utilizing 529 plans, and involving grandparents can help families manage the financial burden of sending multiple children to college. Developing a comprehensive plan and adjusting strategies based on timelines ensures that you can support your children’s educational aspirations while maintaining financial stability.