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JULY 1, 2019

Can you transfer or roll over a 529 account?

Answered by
Richard Polimeni
Director, Education Savings Programs, Bank of America
Yes, individual 529 education savings plan accounts can be transferred from one beneficiary to another eligible member of the family or rolled over into other 529 accounts for the same beneficiary or an eligible family member. But there are certain limitations:
  • Changes in beneficiaries are allowed free of federal (and possibly state and/or local) income taxes — only among certain members of the beneficiary's family.
  • Only one income tax-free rollover of a 529 to a 529 for the same beneficiary is allowed per 12-month period.
  • Rollovers to ABLE accounts (tax-advantaged savings accounts available to benefit those who are disabled and their families) are permitted, subject to ABLE contribution limits.
  • Rollovers from a 529 plan to retirement plans (such as an IRA) are not allowed.
  • You cannot change the beneficiary of a 529 account funded with custodial assets.
"It really is as simple as it sounds. You just change the name of the account's beneficiary to someone else in that person's family or transfer a portion of the assets into the other beneficiary's 529."
— Richard Polimeni, Director in the Education Savings Programs at Bank of America

Can I transfer a 529 plan to another child?

With individual 529 plans you can change beneficiaries without negative income tax consequences — if, say, the original beneficiary decides not to attend college — as long as the new beneficiary is a member of the original beneficiary's family. (Qualified family includes the beneficiary's siblings, parents, children, first cousins, nieces and nephews, among others.) It really is as simple as it sounds. You just change the name of the account's beneficiary to someone else in that person's family or transfer a portion of the assets to the other beneficiary's 529. This is not the case, however, for 529 plan accounts funded with custodial assets, also known as UGMA or UTMA accounts, assets — which are considered an irrevocable gift and therefore the beneficiary cannot be changed. They differ from individual 529 plans in that the funds are invested on behalf of minors who become owners of their accounts once they come of age.
You can now use up to $10,000 per calendar year per beneficiary in 529 assets to help pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school.

Can I transfer between multiple 529 accounts or into another state's 529 plan?

When it comes to rollovers, the IRS rules allow one income tax-free rollover of one 529 account into another for the same beneficiary within a 12-month period. Two reasons you might consider a rollover:
  • You've moved and your new state offers a tax deduction for contributions to qualifying plansFootnote 1, or
  • You want to consolidate multiple 529 accounts into one
You can't, however, roll a 529 plan account into an IRA or any other retirement plan. If you have extra funds in an individual 529 plan account that you don't want to transfer to another beneficiary, you might name yourself as the beneficiary and use the funds for your own future education. Or you could close the account and then move the funds into a retirement account. But if you do so, bear in mind that if you're withdrawing funds for purposes other than qualified education expenses, the earnings portion of those withdrawals are subject to federal income taxes — including, potentially, a 10% additional federal tax as well as state (and/or local) taxes.
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Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
Before your client invests in a Section 529 plan, they should be provided the plan's official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which they should consider carefully before investing. They also should consider whether their home state or their beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection from creditors that are only available for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.
Footnote 1 Note that if you previously received a state tax deduction for a contribution to an account, your deduction may be subject to recapture if that account is rolled over to an account in another state's 529 plan.

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