Can Two Separate 529 Plans Be Merged Together?

Can Two Separate 529 Plans Be Merged Together?
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According to the National Center for Education Statistics, a full-time student living on campus and taking a four-year degree course will spend an average of $25,700, $33,500 or $54,500 per year in a public, private for-profit or private nonprofit institution, respectively. By the time that student completes college, they will probably have a six-figure debt. It’s safe to say that college education does not come cheap, so some people consider having multiple 529 plans to offset some of the costs.

However, having two 529 plans may not be such a good idea because they are costly to maintain. So, it helps to understand how these plans work, what your options are and how you can roll over a 529 to another 529 plan and save yourself some money and the headache of managing multiple plans.

How 529 Plans Work explains that 529 plans are tax-advantaged investment accounts for people who want to save for their college education. Various states, state-based agencies and even educational institutions can sponsor these plans as long as they adhere to section 529 of the Internal Revenue Code. As long as you follow the rules, your earnings will grow tax-free, and you will not have to pay taxes when withdrawing the money.

You can open a 529 account on your own behalf or on behalf of someone else and also use the money in the account to pay for K-12 education, qualified college expenses and registered apprenticeship expenses. In addition, you can use the plan to pay off some of your student loans. However, you need to be an adult United States resident with a tax ID or Social Security number and a legal mailing address.

Types of 529 Plans

Can you have multiple 529 plans? Yes, you can. If several people want to set up an account for one beneficiary, they can do it together or separately.

According to the U.S. Securities and Exchange Commission, 529 plans come in two primary forms: education savings plans and prepaid tuition plans. It is worth noting that these plans will permit you to repay ​$10,000​ of your student loans as well as an additional ​$10,000​ for each sibling. However, that is a lifetime limit, not an annual one.

Education Savings Plans

Education savings plans enable you to open an investment account and invest in securities, like mutual funds and exchanged-traded funds. The money will continue to grow tax free until you withdraw it to pay for qualified expenses, such as room and board and tuition.

These savings plans enable you to pay for education in any tertiary institutions in the U.S., but some may also allow you to pay for college education expenses if you study abroad. However, you are limited to changing your investments twice a year or when the beneficiary changes. Also, there may be limited options concerning what assets you can invest in.

In addition, education savings plans involve several fees, such as yearly account maintenance, program management, asset management and enrollment fees.

Prepaid Tuition Plans

Prepaid tuition plans enable you to buy some credits or units at participating institutions for your future tuition and other fees based on current prices. However, the federal government doesn’t guarantee these plans, which are usually sponsored by individual states.

To enjoy the full benefit of these plans, you must attend a participating institution, which is usually an in-state, public one. If you don’t, you will likely lose some of your investment. Prepaid tuition plans also involve some fees, such as enrollment and administrative fees.

Can You Roll Over a 529 Plan to Another 529 Plan?

You can merge two separate 529 plans. This can happen in several ways:

  • You can transfer your 529 plan to the other one for the benefit of one beneficiary.

  • You can merge your 529 plan with someone else’s.

  • You can roll over one state’s 529 plan to another state’s plan.

When to Roll Over a 529 Plan

You need to think carefully about merging 529 plans. According to the IRS, you can only do a rollover once every ​12 months​ unless you want to designate a new beneficiary. There are several reasons merging 529 plans may make sense:

  • You have moved from one state to another.

  • You need to change the beneficiary.

  • Your state now offers tax advantages you didn’t have before when you opened a 529 plan in another state.

  • The fees you are paying for one or both 529 plans are too high, and you prefer a cheaper option.

  • One account performs significantly better, and you would like to enjoy the much higher net returns.

  • The management of your 529 plan changes, making you uncomfortable with the current managers.

  • Your plan’s underlying asset portfolio changes, and you don’t like what’s on the menu.

  • Your account is inflexible to any changes you may want to make now or in the future.

How to Perform a 529 Rollover

Consider these tips on merging 529 plans:

  • You need to ensure that anyone else with a 529 plan in your name or the name of your account’s beneficiary has not performed a rollover in the past ​12 months​. Otherwise, your withdrawal will be subject to income taxes and a ​10 percent​ tax penalty.

  • When moving to a different state’s 529 plan, determine if your withdrawals will be taxed or if you will enjoy a state income tax deduction.

  • When doing a direct rollover, get a rollover request form from your new 529 plan and complete it so that the administrator can coordinate the funds transfer. If you choose a partial rollover, don’t forget to provide information for the allocation of the reminder of the funds.

  • When doing an indirect rollover, be sure to deposit the required funds into a new 529 plan within 60 days to avoid tax penalties. You should also break down the contributions and earnings when enrolling in the new plan.