Implications of rolling a 529 to another state?
Implications of rolling a 529 to another state?
Are there any implications I should consider if I am rolling a 529 to another state? Tax or otherwise? Thanks
Re: Implications of rolling a 529 to another state?
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
Depending on how you do the transfer, you are limited to 1x/year
So Trustee to trustee best
Mike
Re: Implications of rolling a 529 to another state?
Recapture Tax
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking
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SchruteB&B
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Re: Implications of rolling a 529 to another state?
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.
Re: Implications of rolling a 529 to another state?
Thank you all.
Re: Implications of rolling a 529 to another state?
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.
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.