Can You Transfer Money Between 529 Accounts?

A 529 plan is a tax-advantaged savings account for future education costs. Its primary benefit is that earnings grow federally tax-deferred, and withdrawals are tax-free when used for qualified education expenses. Federal regulations provide pathways for account owners to move funds from one 529 plan to another through a process known as a rollover. This ensures the savings continue to serve their purpose without triggering unnecessary taxes or penalties.

Permissible 529 Plan Rollovers

The Internal Revenue Service (IRS) permits tax-free rollovers between 529 plans in two primary scenarios. The first involves moving funds to a new 529 plan for the same beneficiary. An account owner might do this to seek out a plan with lower administrative fees, different investment options, or better performance.

The second permissible rollover involves changing the beneficiary to a qualifying family member of the original beneficiary. This is a common strategy when the initial beneficiary decides not to pursue higher education, receives a scholarship, or has leftover funds. By transferring the account to a sibling, cousin, or parent, the funds can be repurposed for another family member’s education. This prevents the account owner from having to liquidate the account and incur taxes and penalties.

Key Rules and Limitations

When moving funds for the same beneficiary, the IRS imposes a once-per-12-month limitation. An account owner can only perform one such tax-free rollover for the same individual within any 12-month period. Attempting a second rollover within that timeframe would cause the transaction to be treated as a non-qualified distribution. This makes the earnings portion subject to ordinary income tax and a 10% federal penalty tax.

For rollovers not sent directly between plan administrators, a 60-day rule applies. If an account owner receives a check for the account balance, they have 60 calendar days from the date of withdrawal to deposit the funds into the new 529 plan. Failing to meet this deadline results in the entire distribution being treated as non-qualified.

Changing the beneficiary is permissible only if the new beneficiary is a “member of the family” of the old beneficiary, as defined by the IRS. This includes the beneficiary’s spouse, children, siblings, parents, and first cousins. Unlike same-beneficiary rollovers, there is no limit on how many times you can change the beneficiary to another qualifying family member.

A final consideration involves state tax implications. Many states offer an income tax deduction or credit for contributions made to their own 529 plan. If you claimed such a benefit and later roll those funds into another state’s plan, your original state may require you to repay the tax savings. This is often referred to as tax recapture.

Information and Forms for a Rollover

Before initiating a rollover, you will need the account number of the existing 529 plan and the new 529 plan account number. You must also have the beneficiary’s full name and Social Security or Taxpayer Identification Number on hand.

The central document for this process is a “Rollover Request Form” or “Direct Rollover Form.” This form is not obtained from your old plan; instead, you must request it from the administrator of the new plan. The form serves as your instruction to the new plan to initiate the transfer.

Completing the form involves providing details about both the old and new accounts. You will fill in the account numbers for each, the name of the institution holding the old plan, and the beneficiary’s information. The form will also ask you to specify the amount you wish to roll over, whether it is the full balance or a partial amount.

The Rollover Process

Once the Rollover Request Form is completed, the transfer can begin. The most common method is a direct, or trustee-to-trustee, rollover. In this process, you submit the completed form to your new 529 plan administrator. The new administrator then contacts the old plan administrator to arrange for the funds to be moved from one institution to the other.

The alternative method is an indirect rollover. This process starts with you contacting your old 529 plan and requesting a withdrawal. The plan administrator will send a check made out to you, the account owner. It is then your responsibility to deposit that amount into the new 529 plan within the 60-day time limit to maintain its tax-advantaged status.

Rollovers for Leftover 529 Funds

New regulations have created options for surplus 529 plan funds. Under the SECURE 2.0 Act, account owners can roll over leftover 529 funds into a Roth IRA for the same beneficiary. This transfer is tax-free and penalty-free but comes with several conditions.

• The 529 account must have been open for at least 15 years.
• The funds being rolled over must have been in the account for at least five years.
• The rollover amount in any given year cannot exceed the annual Roth IRA contribution limit.
• A lifetime maximum of $35,000 can be moved from a 529 account to a Roth IRA for any single beneficiary.

This provides a way to convert education savings into a head start on retirement savings.

Another specialized rollover option exists for beneficiaries with disabilities. Funds from a 529 plan can be rolled over to an ABLE (Achieving a Better Life Experience) account for the same beneficiary or a qualifying family member with a disability. ABLE accounts are tax-advantaged savings accounts for individuals with disabilities. A rollover from a 529 plan into an ABLE account counts toward the annual ABLE contribution limit, which is $19,000 for 2025.