Can You Split a 529 Plan? Here’s How It Works

A 529 plan is a tax-advantaged savings vehicle specifically designed to help families save for future education expenses. These plans offer a way to accumulate funds for qualified educational costs, which can include college tuition, vocational training, and even K-12 education. Families sometimes wonder about the flexibility of these plans, particularly whether funds can be reallocated or “split” among different beneficiaries or accounts. This article explores the mechanisms available for reallocating 529 plan funds and the associated considerations.

Understanding Beneficiary Changes and Rollovers

Two primary mechanisms allow for the reallocation of 529 plan funds: changing the designated beneficiary and rolling over funds to another 529 plan. These actions provide flexibility for account owners to adapt their savings strategy as circumstances evolve.

Changing the designated beneficiary involves naming a new individual to receive the benefits of the existing 529 plan. The Internal Revenue Service (IRS) permits this change without tax consequences, provided the new beneficiary is an eligible family member of the original beneficiary. Eligible family members include a broad range of relatives, such as a spouse, child, sibling, or parent. This flexibility can be particularly useful if the original beneficiary receives a scholarship, decides not to pursue higher education, or has leftover funds after completing their education.

Alternatively, funds can be rolled over from one 529 plan to another. This can occur for the same beneficiary, perhaps to transfer funds to a plan in a different state with better investment options or lower fees. A rollover can also be initiated for a new, eligible beneficiary. This effectively allows a portion of the funds to be “split” if some remain in the original account for one person while another portion is moved to a new account for a different family member. A tax-free rollover to another 529 plan for the same beneficiary is generally limited to once within a 12-month period.

Tax Considerations for Transfers

Understanding the tax implications is important when considering beneficiary changes or rollovers within 529 plans. Generally, qualified rollovers and beneficiary changes do not trigger federal income tax. However, certain situations can lead to gift tax implications or non-qualified distribution penalties.

Changing a beneficiary or rolling over funds to a new beneficiary can sometimes have gift tax consequences, especially if the new beneficiary is in a younger generation than the original beneficiary. For example, changing a beneficiary from a child to a grandchild might be considered a gift from the original beneficiary to the new one. The annual gift tax exclusion for 2025 is $19,000 per recipient, meaning gifts below this amount do not incur gift tax or reporting requirements. Amounts exceeding this exclusion may require filing a gift tax return (IRS Form 709) and could reduce the donor’s lifetime gift tax exemption.

If a transfer is considered a non-qualified distribution—meaning funds are used for non-educational expenses or a transfer does not follow IRS rules—the earnings portion of the distribution will be subject to ordinary income tax and a 10% federal penalty.

While federal tax rules broadly apply, some states may have specific considerations. Certain states offer income tax deductions or credits for contributions to their 529 plans. If funds are rolled out of a state’s plan, particularly to an out-of-state plan, that state might “recapture” previous state income tax deductions, meaning the account owner may need to repay those tax benefits.

Initiating a Transfer or Beneficiary Change

The practical process for changing a beneficiary or rolling over 529 plan funds typically involves contacting the plan administrator. Each 529 plan provider will have specific forms and procedures that must be followed.

The first step is usually to contact the current 529 plan provider to request the necessary forms for a beneficiary change or rollover. If rolling over funds to a new plan, it is also advisable to contact the new plan provider to understand their incoming rollover process and any specific documentation they require. Common forms include a “Change of Beneficiary Form” or a “Rollover Request Form.”

These forms will require specific information to process the request accurately. This typically includes:

• Existing account number, full legal name, address, and contact information for the account owner.
• Full legal names, addresses, and Social Security Numbers (SSN) or Taxpayer Identification Numbers (TIN) for current and new beneficiaries.
• The new 529 plan’s account number and details, if performing a rollover.
• Investment allocation instructions for the transferred funds or the new account.

Once the forms are completed, they must be submitted according to the plan’s instructions. This often involves mailing signed forms, though some providers offer online submission portals. After submission, plan administrators will process the request, which typically takes several business days or weeks. Account owners should expect to receive confirmation notices once the change or rollover has been successfully completed.