Transfers & Rollovers

Transfers to a 529 account are permitted so long as they are from any other tax-free savings accounts, including ESAs, UGMAs, UTMAs, and certain savings bonds. Furthermore, if the student decides not to attend college or passes away, the account can be transferred to any “member of the family” so long as the funds are used towards QHEEs. A “member of the family” includes:

  • Children and grandchildren of the old beneficiary and their descendants
  • Step-children of the old beneficiary (but not their descendants)
  • Parents and grandparents of the old beneficiary and their ancestors
  • Stepfather and stepmother of the old beneficiary (excludes step-grandparents)
  • Niece and nephews of the old beneficiary (excludes step-nieces and step-nephews)
  • Aunts and uncles of the old beneficiary (excludes step-aunts and step-uncles)
  • In-laws of the old beneficiary
  • Spouse of any individual listed above
  • First cousins of the old beneficiary
  • Spouse of the old beneficiary

If the new beneficiary is not a member of the family, then the account owner will owe income tax and be charged a 10% penalty tax on any earnings included in the transfer. There may also be a penalty tax incurred if the new beneficiary is below the generation of the original beneficiary. Since funds are controlled by the investor and not the beneficiary, the beneficiary would not have access to the funds if he/she decided not to attend college. Additionally, if there is a change in beneficiary, the account owner may change the investment strategy once per calendar year. According to Section 529(c)3(C) Change in Beneficiaries or Programs, the conditions upon which a rollover is permitted are as follows:

  • “Rollovers are permitted once per twelve month period to another section 529 program for the benefit of the same beneficiary.”
  • “Rollovers are permitted for the benefit of another beneficiary who 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.”
  • “Changes in the beneficiary are permitted if 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.”

Scholarships

If the student earns a scholarship that covers some or all costs, the account owner can withdraw the funds, up to the amount of the scholarship, without any penalty tax. The account owner also has the option of saving the funds for future use, requesting a refund on a semester-to-semester basis, or transferring the credits to another family member (if it is a prepaid plan).

Moves Out of State

If the family moves out of the state in which the account was originally opened, the student may either use the funds at a participating school (depending on the plan), or may have to pay the difference in tuition rate, if any.