529 plan account transfers

529 Plan to 529 Plan rollovers
You are allowed to rollover one 529 plan into another 529 plan. If a rollover conforms to the following conditions you will pay no tax on the transfer:
 * You are allowed only one rollover to another 529 plan per twelve month period for the same beneficiary.
 * You are allowed to rollover a 529 plan to a family member of the beneficiary. There is no restriction on the number of times this can occur per twelve month period.
 * The rollover must occur within 60 days of the distribution for the distribution to not be considered a taxable distribution.
 * You are also allowed to change the beneficiary of a 529 plan as long as the new beneficiary is a member of the family of the old beneficiary. There is no restriction on the number of times this can occur per twelve month period.

Rollovers for I/EE bonds and Coverdell ESAs into 529 Savings Plans
If the 529 plan accepts them, redeeming I/EE Savings Bonds or taking distribution of a Coverdell Education Savings Account and contributing the proceeds to a 529 plan is considered a qualified educational expense. In order to qualify for a tax-free rollover, redeemed funds must be rolled over to the 529 plan within 60 days of the redemption or distribution. Both the redemption/distribution and rollover must also occur within the same calendar year.

I/EE Savings Bond Rollovers: If you meet all of the conditions for meeting the savings bond qualified education expense exclusion, you can roll the qualified redemption proceeds into a 529 savings plan.The savings bond educational interest exclusion is filed on IRS Form 8815. Write "529 College Savings Plan" in the answer to 1(b), where it asks for the name of the educational institution. . The 529 plan will require you to provide a breakdown of principle and interest of the bonds when you make the rollover. For savings bonds, this can be accomplished by sending the plan a copy of Form 8815 or a copy of the 1099-INT form you will have received from the institution that redeemed the bonds. Supplying this information to the 529 plan is critical. If the plan does not receive this breakdown between principle and interest, it will account the rollover as consisting entirely of earnings which are subject to income tax and a 10% additional tax if withdrawn as a non-qualifying withdrawal from the 529 plan. Principle is not taxed in a 529 plan withdrawal.

Coverdell ESA Rollovers: To make a transfer of a Coverdell ESA to a 529 savings plan you would follow these steps:


 * Request a withdrawal from the Coverdell ESA.
 * Contribute funds to a 529 plan for the same beneficiary.
 * Treat the Coverdell withdrawal as a tax-free "qualified distribution" on the beneficiary's income tax return.

When you take a distribution from a Coverdell ESA you will receive a Form 1009-Q (2008). For transfers from a Coverdell Education Savings Account, provide the 529 plan with an account statement issued by the financial institution that acted as trustee or custodian showing contributions and earnings (or losses) in the account. Supplying this information to the 529 plan is critical. If the plan does not receive this breakdown between basis and gain/(loss), it will account the rollover as consisting entirely of earnings which are subject to income tax and a 10% additional tax if withdrawn as a non-qualifying withdrawal from the 529 plan. Principle is not taxed in a 529 plan withdrawal.

Links

 * College Savings Plan Network
 * College Board
 * FinAid Section 529 Plans
 * Information for Financial Aid Professionals (IFAP) Library