Can you transfer or roll over a 529 plan?

A qualified tuition program (QTP), commonly known as a 529 plan, is a smart, flexible way to start saving money for education expenses. Each state handles 529 plans differently, and situations may occur where families may want to move the funds of their 529 somewhere else. Here are some answers to common questions to help make things easier.

Can I roll over an existing 529 account into a new one?

A 529 rollover is a common transaction and can be done by simply filling out the appropriate forms. There are two types of 529 rollovers: a direct rollover and indirect rollover.

• Direct rollover: Funds move directly from your original account into the new one.
• Indirect rollover: Funds from your original account are disbursed to you as a check and must be deposited into the new account within 60 days

Is there a difference between a rollover and a transfer?

A 529 roller is not the same as a transfer, though they can serve similar purposes. A rollover moves money from one 529 account into another. However, a 529 transfer is a change in beneficiary. Both are easy to do, but individuals may prefer one over another.

Will I have to pay taxes on a 529 rollover?

Depending on the timing of your rollover, most people don’t have to pay taxes. The IRS allows one tax-free rollover per beneficiary within a 12-month period. If you do more than one within that period, expect to pay a 10% penalty. If you have been taking advantage of in-state tax deductions on your 529 contributions, doing a rollover may require you to pay a recapture tax to pay back your previous deductions.

Why should I consider a 529 rollover?

Just because you live in a certain state doesn’t mean you can’t have an out-of-state 529 plan. Each state manages 529 plans differently, so it might be beneficial to shop around. Many people consider a 529 rollover for these reasons:

• You move to a different state. Some states offer tax deductions or credits if you contribute to an in-state 529 plan. As your family moves and grows, consider the benefits of using an in-state 529 plan. Certain states do have state income tax recaptures for previous deductions if you roll out of a plan, so be sure to review this with your financial professional before making the change.  
• You want a better 529 plan. All 529 plans are different, so do your homework on the fees and restrictions involved. Everyone wants to get the most out of their investment so it might better to use a 529 plan that you feel is cheaper or can give you a better return over the years.

A 529 rollover is a simple process that can be used to your advantage to get the most for your money. Even though each state handles 529 plans differently, the flexibility and ease of a 529 rollover can put you in a better position to reach your education savings goals.