5 things to consider before doing a 529 plan rollover

Kathryn Flynn
By: Kathryn Flynn
By: Savingforcollege.com
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There are a number of reasons why someone might want to change 529 plans. Perhaps your plan has been underperforming, or you maybe you moved and your new state offers a tax deduction for contributions. In the rare event that a state closes a plan, such as Tennessee's prepaid tuition program, account owners have the option to rollover their account value into a 529 college savings plan without penalty.

But before you make any changes to your plan, ask yourself these five questions:

1. Have you recently done a 529 plan rollover?

529 plans owners are limited to just one tax-free rollover in a 12-month period. This rule applies per beneficiary, not per plan. For example, let's say you moved to another state and you want to transfer the funds in your son's existing 529 plan to a plan in the state you reside in because they offer a tax deduction for contributions. But your father (the child's grandfather) also has a 529 plan with your son named as the beneficiary. You'll need to make sure that he hasn't done a rollover within the last 12 months, or your transaction will be considered a non-qualified withdrawal. The earnings portion of non-qualified withdrawals will be subject to income tax as well as a 10% penalty.

RELATED: When should you switch 529 plans?

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Kathryn Flynn

Kathryn Flynn

Content Director

Kathryn is Content Director at Savingforcollege.com. She has been quoted in financial publications including the Wall Street Journal, the NY Times, Fortune, Money and GOBankingRates, and has been an expert guest on personal finance podcasts. Prior to Savingforcollege.com, Kathryn worked in product marketing at Henderson Global Investors (now Janus Henderson Investors), a global asset manager. She earned her MBA with Finance Concentration from DePaul University's Kellstadt Graduate School of Business, and has prior FINRA Series 7 and 63 licenses. Kathryn has 529 college savings plans for each of her three children, and enjoys creating content to help other families prepare for future higher education costs.

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