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Old 01-24-2018, 07:04 PM
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Moving funds from 529 to FL prepaid

I'm interested in switching my kids 529 plans to a FL prepaid plan. However Florida pre-paid will not accept a direct rollover. So I'm told I'll have to withdraw the funds then pay the prepaid plan. I understand this may have tax consequences and a 10% penalty to withdraw funds. I also read that withdraws that are placed in another qualified plan within 60 days would not be subject to income tax on any gain.

I have two 529 accounts, One has $5500 in it, the other $55,000 in it (one for each child). I want to purchase two Prepaid plans (right now the cost would be just about identical to what I have in the 2- 529 accounts. So I would be using all the withdrawn $ on another qualified plan.

1. If I use all the funds on another qualified plan within the 60 days- would I owe any income tax on this $$?
2. Would I owe the penalty of 10% if all is going to another qualified plan without it being a trustee to trustee transfer?

Thanks for any feedback!



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Old 01-25-2018, 06:12 AM
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1. If I use all the funds on another qualified plan within the 60 days- would I owe any income tax on this $$? =========>>>>>>>it depends;as \you know, While both plans? qualified tuition programs, or QTPs, are classified as 529 plans, you?re correct that the Florida prepaid tuition plan is separate from the Florida 529 savings plan.You can perform a rollover from a 529 college savings plan to a 529 Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the SAME beneficiary or for the beneficiary?s family including the beneficiary?s spouse. An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution.So I can tell you that prepaid tuition plan with no tax consequences if the rollover is performed correctly.Remeber: one limitation IS: If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary.?



2. Would I owe the penalty of 10% if all is going to another qualified plan without it being a trustee to trustee transfer? ------------>>it depends; There is really no such thing as an "early" withdrawal from a 529 plan. As long as the account beneficiary has qualified education expenses, it doesn't matter if the account in question has been open for 18 years or six months.
And, since you've already paid income taxes on the money you contribute to a 529 plan, you are free to withdraw your original contributions at any time for any reason.
BUT if you withdraw any investment gains from the 529 account before the account beneficiary incurs any qualifying expenses, or for non-qualified reasons, the IRS can assess a 10% early withdrawal penalty. Keep in mind that this is in addition to the income taxes you'll have to pay on the gains your investments have produced.In general, The issue of a penalty tax is more likely to come from the other state where the account originally was funded. Several states allow tax deductions for contributions, but only for contributions to that state?s plan. A transfer or rollover may trigger a state tax obligation where the state reclaims your past deduction. So iam not sure if this is your case however, you may need to review the plan documents, check with the original state plan and perhaps also talk to a tax professional about any tax impact.



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