Questions about Using a 529 Plan from another State
Do any of the 529 plans require students to attend schools in the state they originate from, or even if we go for a 529 plan in say Ohio, is the student free to choose schools anywhere?
There are no restrictions on the colleges the student can attend, so long as the college is eligible for Title IV federal student aid. There are more than 6,300 eligible colleges, including more than 400 foreign colleges and universities, including more than 10 colleges in each of Canada, Mexico, England, Scotland, Australia, France and Ireland.
Questions about Transferring a 529 Plan between States
Can I transfer a 529 plan form one state to another 529 plan from another state?
Yes, but if you are rolling over a 529 plan from one state to another, you may have to pay state income tax on the rollover and repay state income tax deductions or tax credits that were claimed in the old state. Some states consider outbound rollovers to be a non-qualified distribution. You should check with your plan on the rules, as they vary by state.
Can a 529 be transferred between states? For example, transfer a Louisiana 529 plan to Ohio? Are there any tax issues or other gotchas when you move a 529 plan to another state?
Yes, a 529 plan can be transferred between states. A rollover is not taxable at the federal level, but may be taxable at the state level.
Some states treat an outbound rollover as a non-qualified distribution. This can lead to taxes on the earnings portion of the 529 plan rollover. It can also involve recapture of the state income tax breaks attributable to the rollover in about half of the states with state income tax deductions and tax credits.
On the other hand, about half of the states allow a state income tax deduction or tax credit on inbound rollovers from an out-of-state 529 plan. In four of the states, the state income tax break is limited to the principal portion of the rollover only.
If my child doesn’t go to a college in a state where I opened the 529 account, can I transfer the account to the state where the college is?
You can transfer a 529 college savings plan to another state. This is called a rollover.
It is not necessary to rollover a 529 plan to the state where your child’s college is located, since 529 plans can be used to pay for college in any state.
There are also potential problems with transferring a 529 plan to another state’s 529 plan. Some states consider an outbound rollover to a different state’s 529 plan to be a non-qualified distribution. The earnings portion of the outbound rollover will be subject to income tax on state income tax returns, but not federal income tax returns. There may also be recapture of state income tax benefits attributable to the distribution.
Generally, state prepaid tuition plans can be used to pay for college in the state. However, the prepaid tuition plan can be rolled over into a 529 college savings plan, and then used to pay for college out-of-state.