Apr 6, 201510:50 AMTaking Stock
with Nathan Brinkman
How does your 529 plan stack up against the competition?
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If you’re one of the millions of parents or grandparents who’ve invested money in a 529 plan, now may be a good time to see how your plan stacks up against the competition. Mediocre investment returns, higher-than-average fees, limited investment options, and flexibility — these factors might lead you to conclude that you could do better with another 529 plan or a different college savings option altogether.
You can research 529 plans at the College Savings Plans Network website at collegesavings.org. If you discover that your 529 plan’s performance has been subpar, what options do you have?
Roll over funds to a new 529 plan
One option is to do a “same beneficiary rollover” to a different 529 plan. Under federal law, you can roll over the funds in your existing 529 plan to a different 529 plan (college savings plan or prepaid tuition plan) once every 12 months without having to change the beneficiary and without triggering a federal penalty.
Once you decide on a new 529 plan, the rollover process is fairly straightforward. Call your existing 529 plan to see what steps are required; some plans may impose a fee for a rollover, so make sure to ask. Then call your new 529 plan and establish an account; your new plan should have a process in place to accept rollover funds. You must complete the rollover to the new 529 plan within 60 days of receiving a distribution from your former 529 plan to avoid paying a penalty.
If you want to roll over the funds in your existing 529 plan to a new 529 plan more than once in a 12-month period, you’ll need to change the designated beneficiary to another qualifying family member to avoid paying a federal penalty. As a workaround, you can change the new beneficiary back to the original beneficiary later.
Change your investment strategy in your current 529 plan
Just because you can switch to a new 529 plan doesn’t necessarily mean you should. If the new 529 plan you’re considering has roughly the same mix of investment choices and similar fees as your current plan, you might ask yourself whether you’d be better off staying put and simply changing your current investment allocations. This is especially true if you have invested in your own state’s 529 plan and the availability of related state tax benefits is contingent on your remaining in your state’s plan.