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529 Accounts Allow for Easy Transfers Among Accounts

07/28/2016

Transfers Among Accounts

Generous grandparents will be pleased to know that if they have opened numerous 529 college savings accounts for their grandchildren, the money can be easily moved from one account to another as the college students’ needs change. And, according to the Kiplinger article, “How to Transfer Money Between 529 College-Savings Accounts, ” there’s no limit to how much you can move or how often you can move funds between beneficiaries.

As the owner of the account, you have the ability to change the beneficiary on the account from one eligible family member to another without any type of penalty or tax. The definition of an “eligible family member” is based on the individual’s relationship to the beneficiary. This will include the beneficiary’s spouse, child or stepchild, sibling or step-sibling, parent or stepparent, aunt or uncle, niece or nephew, an in-law, the spouse of any of those relatives, or a first cousin. You can review the entire list in IRS Publication 970, Tax Benefits for Education.

The way that you make the transfer will vary by plan, but in almost all cases, you should be able to move any amount of money from one beneficiary to another—such as transferring 50% of the money from one grandchild’s account to another grandchild’s account.

For example, at Fidelity, you’d need to complete a beneficiary change form with both of the account numbers. You would have to open up a new account if you didn’t already have one for the new beneficiary. Also, if you decide to do a partial rollover, you can designate the specific amount of money to move from each investment within the account. You also have the ability to say where that money should be invested for the new beneficiary’s account if different from the allocation directions on file for the account.

529 accounts don’t have a limit on how much you can transfer or how often you can transfer funds between beneficiaries, provided the account balance is within the plan’s maximum contribution parameters. The maximum contribution limit will vary by plan, but they’re typically between $235,000 and $370,000 in most state—with a few states having higher limits.

Here’s one more thing you need to know: the transfers between beneficiaries may be easily done, but sometimes it takes a while for funds to make their way from the 529 account to college offices. In certain states, you can’t do an online transfer from the 529 account directly to the college’s financial office. An old-fashioned check has to be printed and mailed, and that takes time. To avoid penalties or problems, contact the plan administrator to learn how funds are disbursed and have the student or parent talk with the college’s financial office to find out how monies from the 529 can be sent to the college.

Reference: Kiplinger ( June 28, 2016) “How to Transfer Money Between 529 College-Savings Accounts”

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