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529 Rollover Question

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  • 529 Rollover Question


    I am a longtime reader, but this is my first time posting a question.

    I am trying to decide on the best 529 plan for my current situation.  I live in a state with a great tax break but expensive fund options.  My state does not recapture tax deductions for rollovers.  My question is this...  would it be reasonable to fund the 529 in my home state up to the limit for a state income tax deduction (say a one time contribution), and then the following day rollover the full amount into the state plan of my choice?  I am looking at the Nevada 529 plan, possibly one of the balanced portfolios with an ER of 0.16.

    I called my state 529 office today and they confirmed no recapture tax, and they also said there is no minimum time money has to remain in the account for the income tax deduction to apply and there is no minimum amount to keep the account open.

    So my tentative plan is to make an annual contribution of the max amount into my state 529, the next day rollover the amount into my state plan of choice and leave my home state 529 account at a balance of zero until I do the same thing again the next year (making sure I follow the 12 month rule for rollovers).  It seems this way I can get the tax break and the lower fees...

    What do you guys think about this?  Any red flags I should consider?  Thanks!

  • #2
    Your plan seems reasonable.  Will they leave the account open with a zero balance or do you need to leave a token amount?

    I essentially do the opposite.  My state 529 plan was awful and didn't have a tax break.  I invested elsewhere.  Then my state changed plans.  They now offer a state tax deduction on up to $10K when rolled in annually, and no state tax on withdrawals.  No time commitment on how long funds have to be in account before I use them.  So I roll-in what I plan to use for the year and use it.  Each year I check that nothing has changed before I proceed though.  Good luck!


    • #3
      I am surprised this genius post right here does not get more attention. Super excited to do this ASAP!

      No need to compare various states for their fees/performance versus state tax deductions. You can have the cake and eat it too by doing a 529 plan to 529 plan rollover. Open the 529 in your state, get the state tax deduction, then roll it over to Utah's 529. You can do this once a year, every year. Only a couple of states recapture deducted 529 contribution taxes if a plan is transferred to an out of state plan, luckily my state is not one of them. Moreover, if I front load it, I get 10 years carryover for state tax deductions.

      Am I missing something? Why more people don't do this?


      • #4

        Hello! So glad to see a comment on this thread. I am the original poster (was mammo doc but changed my forum name). I am planning to do this for the 2017 tax year. I will certainly share my experience here. Please do the same if you try this strategy!


        • #5
          Virginia recaptures the tax break if you roll your 529 to another state. Might be useful to list other states that recapture.


          • #6
            Sure, here it is: