Q & A: Demystifying 529 savings plans

April 1, 2008

Yes, a rollover into a different 529 program may be made an unlimited number of times as long as a new beneficiary is named on the account each time. If a rollover is done without changing the beneficiary, no additional rollovers may be completed in the following 12 months unless the beneficiary is changed. In any case, the rollover must be completed within 60 days and you should look into any restrictive terms and charges that may apply.

Key Points

Q: Can I roll my existing 529 savings account into a different state's 529 savings plan?

A: Yes, a rollover into a different 529 program may be made an unlimited number of times as long as a new beneficiary is named on the account each time. If a rollover is done without changing the beneficiary, no additional rollovers may be completed in the following 12 months unless the beneficiary is changed. In any case, the rollover must be completed within 60 days and you should look into any restrictive terms and charges that may apply.

Q: Can I transfer my existing UTMA/UGMA account into a 529 savings account?

Q: Can I transfer my existing Coverdell education savings account (ESA) into a 529 savings account?

A: Yes. Cash distributed from an ESA for the purpose of contributing it to a 529 savings account is considered a qualified higher education expense that is not subject to federal income tax or penalties. Before transferring from an ESA, you should remember that qualified withdrawals are federally tax-free for both education savings accounts and 529s. Also, ESAs have more investment control than 529s and can be used for elementary and secondary education. Therefore, you should carefully consider the pros and cons in making this move. Since an ESA is treated as a custodial account, it is debatable whether the account owner will have the ability to change the beneficiary of the 529 account once assets are transferred in. State law may require that the 529 account be established in a way that protects the minor's ownership rights.

Q: Can I roll my existing U.S. savings bonds into a 529 savings account?

A: Yes. However, for a rollover of U.S. savings bonds into a 529 plan to be a tax-free transaction, you must meet all the qualification requirements for the education exclusion, including the income limits in the year of the redemption/rollover.

Q: What are qualified higher education expenses?

A: Qualified higher education expenses include tuition, fees, books, supplies and equipment required for the enrollment or attendance of the beneficiary at an eligible educational institution (definition below). Room and board is also included if the student is at least halftime. Room-and-board limits will be set by the educational institution. Any withdrawal for qualified expenses is called a "qualified withdrawal."All other withdrawals are termed "nonqualified withdrawals."

Q: Which schools are considered "eligible education institutions"?

A: 529 savings plans will pay for qualified expenses at any accredited private or public college, university, or technical or vocational school in the country and some foreign countries. You can look up eligible institutions on the Education Department's school code search page at http://www.easyaid.com/ssl/06-07-fafsa.html

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