So I would strongly encourage a 529 plan to 529 plan rollover. Funds can be rolled over from one 529 plan to another once per year for the same beneficiary. Funds can also be rolled over at any time for a different beneficiary who is a family member of the previous beneficiary.
Some states offer tax breaks for inbound rollover contributions, including deductions and tax credits.
Also you can do a 529 to Roth IRA.
As of January 1, 2024, 529 plan owners and beneficiaries can roll over funds to a Roth IRA owned by the beneficiary without taxes or penalties. This is subject to certain limitations, including:
- The amount rolled over must have been in the 529 account for at least five years
- The beneficiary's annual contribution limit to the Roth IRA applies
- The lifetime limit for the beneficiary is $35,000, even if they have more than one 529 account.
Now to the question of New York taxes. A rollover of assets from your NY's 529 College Savings Program account to a 529 plan in another state is subject to New York State income tax on earnings, as well as the "recapture" of New York State tax deductions previously taken.
Under New York State law distributions for K-12 tuition, rollovers to a beneficiary's Roth IRA account, and qualified education loan repayments are also considered nonqualified withdrawals and will require the recapture of any New York State tax benefits that have accrued on contributions
Thank you for the opportunity to answer your questions @ppalm
All the best,
Marc T.
TurboTax Live Tax Expert
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