Can I roll a Traditional IRA into a 529 college account for my grandchild?

By Denise Appleby AAA
A:

A 529 plan, also known as a "qualified tuition program", is an investment vehicle that allows individuals to save for education expenses at an eligible education institution. "Eligible education institution" refers to any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program. This includes virtually all accredited public, nonprofit and privately owned post-secondary institutions. Earnings in a 529 plan are tax free if used for qualified education expenses and can be set up by anyone.

Movement of assets from a Traditional IRA to a 529 plan would be considered a distribution from the Traditional IRA and a contribution to the 529 plan. As such, the distribution would be treated as ordinary income to the IRA owner for the year the amount leaves the IRA. Additionally, the credit to the 529 plan would be subject to the 529 plan rules, which include contribution limits.

For more insight, see Choosing The Right Type Of 529 Plan and Common IRA Rollover Mistakes.

This question was answered by Denise Appleby.

RELATED FAQS

  1. Does it make sense to convert a Traditional IRA to a Roth when the market’s down?

    If your modified adjusted gross income (MAGI) is $100,000 or less and you are not married filing separately, you may initiate ...
  2. Can I still set up an SEP if one of my employees refuses to participate?

    You can establish the SEP IRA, even if the employee refuses to participant. However, you would need to establish an IRA for ...
  3. I want to close my IRA account. What percentage will I lose to tax?

    You can move the amount by means of a trustee-to-trustee transfer to another IRA, or roll over the amount to your 401(k). ...
  4. I have some stocks in a taxable account. Can I use them to fund my Roth IRA instead ...

    Regular IRA contributions must be made in cash. Contributions of securities are not allowed. Internal Revenue Code Section ...
RELATED TERMS
  1. Gold IRA

    Definition of Gold IRA
  2. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  3. Student Loan Forgiveness

    Under certain circumstances, federally backed student loans – ...
  4. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  5. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  6. Post-9/11 GI Bill

    A United States law that provides benefits to military veterans ...
comments powered by Disqus
Related Articles
  1. I Was Intimidated By Investing, But ...
    Investing Basics

    I Was Intimidated By Investing, But ...

  2. Impact Of Continuing To Work In Retirement ...
    Retirement

    Impact Of Continuing To Work In Retirement ...

  3. Health Insurance Tips For College Students
    Insurance

    Health Insurance Tips For College Students

  4. Independent 401(K): A Top Retirement ...
    Retirement

    Independent 401(K): A Top Retirement ...

  5. After-Tax Balance Rules For Retirement ...
    Taxes

    After-Tax Balance Rules For Retirement ...

Trading Center