Is it ever a good idea to roll over your 529 college savings plan? Sometimes it is. Reasons to consider a rollover include the opportunity for better investment returns or lower fees.
Thanks to federal income tax rules similar to those for IRAs, 529 plan rollovers are typically tax-free. For instance, you can request a direct transfer from your current plan to the new plan, or you can receive the distribution as a check.
When you choose the second option, you have 60 days to redeposit the money. After that, the earnings portion could be taxable to you, as well as subject to a penalty.
- What to watch out for. Current tax law considers a rollover valid when you transfer the money either to a different plan for the benefit of the original beneficiary or to a different qualifying beneficiary.
The wording of the rule is deceptively simple, yet may be tricky. For example, rollover treatment can be disallowed if you withdraw funds from your 529 plan, then change your mind and redeposit the funds into the same account with no change in beneficiary. That’s true even if you complete the transaction within 60 days.
- What else to consider. A one-time-per-year limit may apply to rollovers. In addition, some states impose penalties, fees, or recapture taxes when you transfer to an out-of-state plan.
Please call if you have questions about 529 plans. We’ll explain the rules and help you choose the best investment to fund your child’s education.
Tags: 529 college savings, 529 plans, accountant, accounting, bookkeeper, bookkeepers, Business, business owners, consulting, CPA, education 529, Enter your zip code here, federal income tax, FL, income tax rules, iras, Kissimmee, NY, Orlando, professional advice, quickbooks proadvisor, Rochester, rollovers, Saxon, Secord, tax tip, Thaney, therapists, West Palm Beach