Whether you’ve moved from another state and want to take advantage of your new home’s state-tax deduction for 529 contributions, or you want to change to a lower-cost or currently better performing 529 plan (but as you know, past performance is not indicative of future results), you can roll over your previous 529 account to a new one. You are allowed one tax-free rollover in a 12-month period per beneficiary, according to federal tax law.
Be aware: A 529 plan rollover that does not meet the 12-month time period per beneficiary will be considered a non-qualified withdrawal by the Internal Revenue Service (IRS); therefore, it will be subject to tax consequences. For instance, if another account owner rolls over a different 529 plan for your beneficiary in a 12-month period before you do, but you still choose to do the rollover, there will be federal, state, and local taxes assessed on the 529 account’s earnings as well as 10% federal tax penalty.
Here at CollegeAdvantage, Ohio’s 529 Savings Program, we try to simplify this rollover process for you. As you start a new account, there is a section on the application which shows the choices for the contribution method. Along with more traditional means of funding the account, you have the option to select a direct or indirect rollover from another 529 plan.
Direct rollovers involve the transfer of money from one 529 plan directly to another. To request a direct rollover from another 529 plan to your CollegeAdvantage one, complete an Incoming Rollover Form and send it in. CollegeAdvantage will request the funds from the other 529 plan. This form is also applicable if you are doing a rollover from Coverdell Education Savings Account (ESA). If you are rolling over from another 529 plan to CollegeAdvantage and you already have online account access, you have the ability to complete the form within your secure log-in and mail it directly to your other 529 plan. This will help to cut down on the time needed to mail then process your rollover. The steps to complete this process are quite simple. Once you are logged in, you select the account for which you want to complete the Incoming Rollover with CollegeAdvantage, and then you select the menu item called “Rollover from another 529.” The system will walk you through the remainder of the steps through the end of the process.
Please note for direct rollovers, there are a number of requirements in order to process this type of transaction. The account owner and beneficiary on both 529 plans must match. In addition, the account type must be the same (Individual, UGMA/UTMA, Trust).
Indirect rollovers involve the transfer of money from an account in another state’s 529 plan to yourself, and then you would contribute the money to an account in the CollegeAdvantage Direct Plan. Indirect rollovers also apply to qualified U.S. Savings Bonds and Coverdell ESAs. To avoid penalties and federal income tax consequences, the rollover money must be contributed to a CollegeAdvantage Direct Plan account within 60 days of withdrawal from the original 529 plan. CollegeAdvantage has no responsibility to, and does not, monitor the timing of indirect rollovers, and will not accept or reject indirect rollovers based on timing. You must ensure your compliance with the timing that is required under federal law to avoid tax consequences.
Please note, for indirect rollovers, if the amount of the check is greater than $10,000, you must deposit the check, and mail us a check made payable to Ohio Tuition Trust Authority and include a copy of the principal and earnings statement from the other 529 plan, U.S. Savings Bonds, or Coverdell ESA. If the check is $10,000 or under, you may endorse the back of the check and sign it over to Ohio Tuition Trust Authority as well as include the principal and earnings statement.
No matter whether you choose to a direct or indirect 529 rollover to fund your CollegeAdvantage 529 plan, you will need to provide a principal and earnings statement from the distributing 529 plan, which will show the earnings portion of the contribution. If CollegeAdvantage does not receive this documentation within 60 days of receipt of the contribution, the entire amount of your contribution will be treated as earnings per IRS rules governing 529 plans.
If you are rolling over assets held in a Coverdell ESA or a qualified U.S. Savings Bond, you will need to provide the following documentation:
- For assets from a Coverdell ESA: An account statement or other documentation from the custodian financial institution showing the total amount contributed and the proportion of the assets that represent earnings.
- For assets obtained by redeeming a qualified U.S. Savings Bond: An account statement, a Form 1099-INT, or other documentation from the financial institution that redeemed the bond showing how much of the proceeds represented interest and how much represented Principal. Qualified bonds are generally Series EE or I, and have multiple restrictions; see www.treasurydirect.gov under “Individuals,” “Planning & Giving,” “Education Planning” for more information.
An additional note: A transfer of assets from the CollegeAdvantage Advisor Plan or the CollegeAdvantage Guaranteed Plan to the CollegeAdvantage Direct Plan will be considered an exchange of assets, not a rollover. As such, it is subject to the twice per calendar year limitation placed on exchanges by IRS rules governing 529 plans.
Be sure to speak with a tax professional prior to completing any rollover to understand if there are other tax implications associated with the transaction.
With CollegeAdvantage, it’s your plan, your way. As you set up the rollover of the assets, you can select from ready-made, age-based portfolios, ready-made, risk based portfolios, or build your own investment portfolios by selecting from international equity options, U.S. equity options, balanced options, fixed-income options, capital preservation options and banking options. Are you looking at the investment options and are wondering what your risk tolerance is? We can help you determine it. There are also tools available to help set and meet your savings goal. If you need help determining how much to put aside each month, use our College Savings Planner to receive personalized saving information. After inputting your college savings goals and examining your total projected costs, you will receive an estimated monthly amount needed to meet your savings objective. Please note that this is an example for illustrative purposes only. For additional advice, consult with your legal, financial, tax, or other advisor.
If you’re already putting money aside in an Ohio 529 Plan, you can track your investment performance, see if you need to change your saving strategy as your child grows, or perform regular maintenance on your 529 account.
CollegeAdvantage strives to keep the 529 plan rollover as simple as possible. By following the above guidance, and preparing the correct forms and documents, you can soon receive all the tax benefits of a CollegeAdvantage Direct 529 Plan.