529 Rollover Question

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Topic Author
travelogue
Posts: 86
Joined: Sat Aug 12, 2017 4:29 pm

529 Rollover Question

Post by travelogue » Sun Oct 08, 2017 3:23 pm

We have three kids and started a Maryland 529 account for each of them at the beginning of this year (2017). The fees in MD's plan (administered by T.Rowe Price) are fairly high (.66% for one and .72% for the other two) for the AA we want. I'm thinking of rolling the accounts over each year to another state, probably MA's U.Fund plan, which now boasts ERs of .16%,.15%, and .13% for the funds we like. (Kudos to Mass. and Fidelity for getting those fees way down.)

Should I just roll over the entire accounts to the same beneficiaries in Jan, after making the last contributions for the year for MD tax deduction purposes? (MD doesn't have a recapture provision.) Any other considerations to keep in mind?

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rickparks
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Joined: Wed Jul 03, 2013 3:00 pm

Re: 529 Rollover Question

Post by rickparks » Sun Oct 08, 2017 8:58 pm

I would say just roll them over to 3 new accounts.

I rolled over 2 accounts from Indiana to Ohio a few years ago. What is the Maryland state tax deduction?

If there is no recapture provision, what is to keep you from contributing to the Maryland 529, then rolling it over to the lower cost fund? Someone smarter than me would have to comment on how long the funds have to stay in the account to get the tax break.

Just food for thought. This way, you get the best of both worlds, if it’s worth the extra work.

Topic Author
travelogue
Posts: 86
Joined: Sat Aug 12, 2017 4:29 pm

Re: 529 Rollover Question

Post by travelogue » Sun Oct 08, 2017 9:44 pm

@rickparks -- right, that's the idea. I'll contribute during the year, take the tax deduction, then roll them into a better 529 for the long-term.

Here are the MD rules:
Maryland College Investment Plan

If you are the account holder or a contributor, you may deduct up to $2,500 of contributions each year from your Maryland State income per beneficiary - $5,000 for two, $7,500 for three, etc. However, you cannot deduct more than $2,500 per beneficiary per year. Contributions totaling more than $2,500 per beneficiary may be deducted for up to the next 10 years.
https://maryland529.com/basics-of-529-c ... -529-plans
Can an account in a 529 plan be rolled over to another 529 plan?

Yes, you can make certain rollovers without incurring taxes or penalties, but they have to meet certain conditions. You must place the amount to be rolled over into another account or an account of another 529 plan within 60 days after the date of the distribution. The new account must be for the same beneficiary, or for the benefit of a different beneficiary who is also a member of the family of the prior beneficiary. Please consult your tax advisor for tax implications specific to your situation.
https://maryland529.com/faqs/basics

mervinj7
Posts: 733
Joined: Thu Mar 27, 2014 3:10 pm

Re: 529 Rollover Question

Post by mervinj7 » Sun Oct 08, 2017 10:01 pm

travelogue wrote:
Sun Oct 08, 2017 3:23 pm
We have three kids and started a Maryland 529 account for each of them at the beginning of this year (2017). The fees in MD's plan (administered by T.Rowe Price) are fairly high (.66% for one and .72% for the other two) for the AA we want. I'm thinking of rolling the accounts over each year to another state, probably MA's U.Fund plan, which now boasts ERs of .16%,.15%, and .13% for the funds we like. (Kudos to Mass. and Fidelity for getting those fees way down.)

Should I just roll over the entire accounts to the same beneficiaries in Jan, after making the last contributions for the year for MD tax deduction purposes? (MD doesn't have a recapture provision.) Any other considerations to keep in mind?
If you're using Fidelity, check out their "national" 529 which is the New Hampshire one. Fees are also very low. 0.12% net for the 2036 index fund.

https://www.fidelity.com/529-plans/new-hampshire

feehater
Posts: 117
Joined: Fri Jul 14, 2017 10:14 am

Re: 529 Rollover Question

Post by feehater » Mon Oct 09, 2017 8:44 am

When I read those rules, my question is, what is to keep you from opening a 4th and 5th 529 for each parent, claiming the tax deduction, and then switching the beneficiary to a kid later?

deskjockey
Posts: 201
Joined: Sat Dec 03, 2016 11:15 am

Re: 529 Rollover Question

Post by deskjockey » Sat Jan 12, 2019 1:04 pm

feehater wrote:
Mon Oct 09, 2017 8:44 am
When I read those rules, my question is, what is to keep you from opening a 4th and 5th 529 for each parent, claiming the tax deduction, and then switching the beneficiary to a kid later?
Nothing at all.

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