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.



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