Can You Transfer Money From One 529 College Fund To Another
The IRS allows one tax-free rollover of a 529 account per casher in a 12-month catamenia. If y'all violate the 12-month rule, the transaction is considered a non-qualified distribution and subject area to federal income tax, non to mention a 10% penalization on the earnings.
In that location are numerous reasons for because a change in plans. For example, you may prefer a plan with lower investment management fees; you may adopt a programme with more robust investment options; yous may relocate to a land with more favorable tax benefits for contributions to a 529 college savings plan; you may want to consolidate your 529 plan assets; you may want to switch from your state's 529 prepaid tuition plan to your state'south 529 college savings plan or vice-versa; or the casher of your programme may make up one's mind non to pursue higher education and you decide to transfer the plan's avails to another beneficiary.
When should you lot switch 529 plans?
You are permitted to rollover assets from 1 529 plan into another 529 programme.
If a rollover satisfies the post-obit conditions, you will non incur whatever tax consequences:
- You lot are permitted only one rollover to another 529 plan per twelve-month catamenia for the same beneficiary.
- You are permitted to rollover a 529 plan to a family fellow member of the beneficiary. There is no restriction on the number of times this tin can occur in whatsoever twelve-calendar month menstruum. Please refer to IRS Publication 970 for clarity regarding the definition of a family member (see details beneath).
- The rollover must occur within 60 days of the distribution for the distribution to not be considered a taxable distribution.
- Y'all tin can change the beneficiary of an existing 529 plan provided that the new or updated casher is a member of the family of the erstwhile or previous casher.
*Please note that transfers between siblings are not considered rollovers, then moving around within an existing 529 program does not touch on your power to pursue a rollover.
How to transfer 529 plan funds to a sibling
Well-nigh 529 savings plans facilitate direct transfers, without liquidating the plan assets and mailing yous a bank check. In club to avoid any tax consequences, direct transfers must be completed within 60 days. Information technology is worth noting that some states may assess a recapture tax on past tax deductions for out of state rollovers. In other words, when you lot scroll over assets in another land's plan, you may be required to pay the state income tax on any contributions for yous which you previously received a deduction.
According to IRS Publication 970, Tax Benefits on Educational activity, a member of the family unit of a 529 plan casher includes the beneficiary's:
- Spouse
- Son, daughter, stepchild, foster kid, adopted kid or a descendant
- Son-in-law, daughter-in-police
- Siblings or stride-siblings
- Brother-in-police force, sister-in-law
- Father-in-law, mother-in-law
- Father or mother or ancestor of either, stepmother, stepfather
- Aunt, uncle or their spouse
- Niece, nephew or their spouse
- First cousin or their spouse
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Source: https://www.savingforcollege.com/article/ask-an-expert-how-can-i-move-my-funds-from-one-529-plan-to-another-without-incurring-taxes
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