Implications of rolling a 529 to another state?

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Joe300
Posts: 9
Joined: Sun Jan 27, 2019 4:46 pm

Implications of rolling a 529 to another state?

Post by Joe300 » Mon Feb 11, 2019 7:41 pm

Are there any implications I should consider if I am rolling a 529 to another state? Tax or otherwise? Thanks

fabdog
Posts: 751
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Location: Williamsburg VA

Re: Implications of rolling a 529 to another state?

Post by fabdog » Mon Feb 11, 2019 8:00 pm

Check to see if the state where you currently have the 529 "recaptures" any tax benefits you may have received for contributing in the past. I have money in 2 different state plans that is staying there because they will recapture any state tax benefits I got when making the contribution

Depending on how you do the transfer, you are limited to 1x/year

So Trustee to trustee best

Mike

pdavi21
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Joined: Sat Jan 30, 2016 4:04 pm

Re: Implications of rolling a 529 to another state?

Post by pdavi21 » Mon Feb 11, 2019 8:01 pm

Recapture Tax
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

SchruteB&B
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Joined: Mon Jul 02, 2018 7:48 am

Re: Implications of rolling a 529 to another state?

Post by SchruteB&B » Mon Feb 11, 2019 8:04 pm

As mentioned, recapture is the big gotcha. In Illinois, for example, if you contributed in past years when the state tax, and thus your tax credit, was lower, they have specified that you must repay the rollover amount with the current, higher, state tax rate.

Topic Author
Joe300
Posts: 9
Joined: Sun Jan 27, 2019 4:46 pm

Re: Implications of rolling a 529 to another state?

Post by Joe300 » Wed Feb 13, 2019 7:09 pm

Thank you all.

NoHeat
Posts: 308
Joined: Sun Sep 18, 2016 10:13 am

Re: Implications of rolling a 529 to another state?

Post by NoHeat » Wed Feb 13, 2019 7:30 pm

I have rolled over 529s from one state to another several times.

One gotcha, as mentioned above, is to avoid the penalty paid to your state, for withdrawing from your own state's fund, if you've previously taken a tax deduction for a contribution.

The other gotcha I can mention is to avoid a penalty to the feds, for making more than one rollover per 12 months per beneficiary. I've almost bumbled into that situation myself -- I was saved by the alertness of the staff at the 529 fund I was transferring out of -- they warned me when I tried to do a rollover too soon after one I did the previous year. If you really need to do this sooner than 12 months, there are work-arounds involving changing benficiaries, but it's easier to just wait 12 months.

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