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JUNE 1, 2018

Can You Transfer or Roll Over a 529 Account?

Answered by
Richard Polimeni
Director, Education Savings Programs
Yes, Individual 529 education savings plan accounts can be transferred from one beneficiary to another or rolled over into other 529 accounts for the same beneficiary. But there are certain limitations:
  • Changes in beneficiaries are allowed free of income taxes — only within the beneficiary's family.
  • Only one income tax-free rollover (529 to 529 for the same beneficiary) is allowed per 12 month period.
  • Rollovers to ABLE accounts (tax-advantaged savings accounts available to those who are disabled and their families) are permitted, subject to contribution limits.
  • Rollovers from a 529 plan to retirement plans (such as an IRA) are not allowed.
"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."
— Richard Polimeni, director, education savings programs, Merrill Lynch
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 the original beneficiary's family. (Qualified family includes the beneficiary's siblings, parents, children, 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," says Richard Polimeni, director, Education Savings Programs, Merrill Lynch. This is not the case, however, for Custodial 529 plans — known as UGMA or UTMA accounts — which are restricted to a single, unchanging beneficiary. 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.
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 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, those withdrawals are subject to federal income taxes — including, potentially, a 10 percent additional federal tax as well as state (and/or local) taxes.
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Footnote 
Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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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