Can a 529 Plan Be Rolled Over?
Rearranging your 529 plan account can offer many advantages, from lower fees and improved investment options, to changing beneficiaries without incurring penalties.
Federal tax rules only permit one rollover per beneficiary every 12 months; therefore, multiple accounts owned by the same beneficiary must work together to avoid penalties.
What is a 529 plan?
A 529 plan is a college savings account that allows you to contribute funds tax-free for qualifying education expenses such as tuition fees, room and board, textbooks, computers and equipment.
Use the funds from your 401(k) plan to pay for eligible K-12 educational expenses; under the SECURE Act of 2019, qualified expenses now also include apprenticeship programs and student loan repayment.
Changes to a 529 plan’s beneficiary can be made at any time without incurring taxes or penalties, though only one tax-free rollover per 12-month period will be possible.
You have the option to transfer your 529 plan from one state to another if available to you, though rules vary between states regarding this option; some might treat this transfer as a rollover while others might classify it as non-qualified distributions; so before making your move be sure to review any guidelines associated with each plan before proceeding with any decisions.
How can I roll over my 529 plan?
A 529 plan rollover is the tax-free transfer of funds between Qualified Tuition Programs. To begin the process, close your account in your old program – each 529 program has different guidelines on this matter so we recommend reaching out directly to their customer service department for guidance on this.
After that, you can open a Virginia529 Direct Plan account and move your assets over. Our online account application or paper forms make this simple.
Be mindful that only one tax-free rollover per beneficiary in any one year. Otherwise, any additional rollover will be considered non-qualified withdrawal and subject to federal income tax and a 10% penalty – so make sure your funding strategy considers whether a rollover would be best.
Can I roll over my 529 plan to a Roth?
A provision of the SECURE Act of 2022, included as part of an omnibus funding bill for 2023, allows investors to roll over up to $35,000 of any unused 529 college savings plan assets into a Roth IRA for account beneficiaries as of 2024. This beneficial change is great news for anyone who invested in 529 plans but did not use all their funds toward tuition costs for their child or want a jump start on retirement planning.
As one lump sum into a Roth IRA, assets may be transferred one time annually – however this total must be adjusted downward based on any actual contributions made during that year to an IRA account. There may also be income limits and rules regarding where funds may be moved; please consult a tax professional for more details.
Can I roll over my 529 plan to another state?
Rollovers occur when funds move between state 529 plans; however, the IRS only permits one tax-free rollover per beneficiary every 12-months. Any further distributions could be considered unqualified distributions and subject to federal income taxes and an earnings penalty of 10%. To avoid this scenario, first open an account in your new home state 529 plan; filling out their form and providing them with your old account statement that shows both basis and earnings of your previous distributions will help.
Your 529 plan may also be altered with any eligible family member as beneficiary (i.e. sibling or spouse). Unfortunately, federal rules prohibit more than one beneficiary change per 12-month period.
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