Tags: Retirement | 529 plan | roll over

Why and When You Should Roll Over Your 529 Plan to Another

By    |   Monday, 27 Apr 2015 04:27 PM

A 529 plan is a great investment for parents looking to save for college. One of the benefits of a 529 plan is that it is exempt from federal taxes.

The only way to save tax penalties on a 529 plan is to either spend the money for a qualifying education expense, or roll the money from one beneficiary to another. Under certain circumstances, it is better to roll the money from one plan to another.

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First thing to note, 529 plans are generally state sponsored initiatives. A person does not have to enroll in the 529 plan from their own state and the plans are competitive with each other.

According to Savingforcollege.com, a plan
can be rolled once within a 12 month period to a new plan in another state without penalty. The only way to get around a penalty for a roll over would be to change beneficiaries.

While most people do not consider rolling a 529 plan into another 529 plan, some considerations may include the cost of fees or the opportunity to take advantage of an in-state tax deduction.

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Another reason to roll over one 529 plan to another would be if the beneficiary has completed his or her education. In that case, a 529 plan can be rolled over — penalty free — to a wide range of family members.

The Internal Revenue Service recognizes the legitimacy of a roll over to a beneficiary's sibling — including step siblings or first cousins. It also can be rolled generationally to either the beneficiary's mother, father, aunt or uncle as well as to their own child or niece or nephew.

Step family members are treated equally from a tax perspective as are spouses of the beneficiary. That means the beneficiary might be better served by holding on to their plan – even after their own education is completed – until such time that they can roll the plan to their own children.

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A 529 plan is a great investment for parents looking to save for college. One of the benefits of a 529 plan is that it is exempt from federal taxes.
529 plan, roll over
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2015-27-27
Monday, 27 Apr 2015 04:27 PM
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