Posted by Mike Smith :: December 22, 2008 @ 6:37 am

Saving for college through a state-sponsored 529 plan offers many advantages, not the least of which is a potential tax savings. Another significant advantage is that money can even be saved for children who haven’t been born yet.

If the plan you choose doesn’t specifically allow saving for an unborn child, the plan can be established with one of the parents as the beneficiary and then transferred to the child after birth. The provision to invest for future children is useful for many reasons. First, you may be more able to invest when you don’t have the accompanying costs of having children. Saving more when you are able to, to compensate for smaller contributions when you’re less able to make them, is one of the scenarios I described in Advantageous Times to Invest.

Another advantage of saving for future children is that your investments have more time to appreciate. All investors know that time is one of the most valuable assets. By saving before your children are born, you can extend the timeframe of your 529 investments from 18 years (birth to college age) to something longer. A couple that is married for 6 years before their first child is born has 33% longer for their investments to appreciate.

Since your intentions may change over time or physical circumstances may prevent you from having children, it’s also important to consider what will happen to a 529 account if the children for whom it is intended never come to be. Since the plan beneficiary can be changed, you can instead use the assets for qualified education expenses for a family member, including yourself. Other options are similar to those in the case where there is money left after a child’s expenses are complete.

If you plan to have children in the future, saving for their college education as soon as possible will help to make the expense more affordable. Giving yourself more time to save and contributing before the costs of having a child come into play make a strong case for starting a 529 plan before your children are born.