Should I roll over the 529 college savings accounts?
Some big things are happening in our family. I started a new job that has an incredibly cool feature (which I’ll write about sometime soon). We’re selling our house, buying another, and moving to another state. My wife will also be staying home with our second child for the next couple of years, so the budget’s been completely up-ended. Busy, busy.
Since our family’s money situation will change radically, we’ve had to make a number of changes to our financial priorities. One of those priorities has been saving for our two kids’ college funds. After wrestling a little with whether paying for college for them is a good idea, we’ve been saving pretty aggressively toward that goal. One of the priority shifts I just mentioned is that we’re scaling this back a bit until my wife returns to work. We’ll still be saving, just at a slower pace.
We have a couple of decisions we have to make.
- Do we continue to contribute to the 529 we already have set up (in our soon-to-be former state)?
- If not, do we open an account in the new state’s plan?
- Should we roll over the old account into the new?
I’m going to leave it as a given that we’ll continue to use a 529 savings account plan. There are, of course, lots of other ways to save for college, but this one works best for us.
The old state’s 529 was one of the best rated by savingforcollege.com, the premier site for information on saving for college (with which I have no affiliation). It offered a state tax deduction for contributions, it was low fee and run by T. Rowe Price, and it had lots of good investment options. So it’s going to be tough to beat in a 529 plan.
The new state’s 529 is also really good, though. It also offers a state income tax deduction for contributions (up to a certain dollar limit); is low fee and run by Vanguard; it also has plenty of appropriate investment options.
This is a no-brainer. We’ll suspend contibutions to the old plan and open an account in the new state’s plan and begin contributions there. It’s obvious because the plans are similar in every respect - it’s not like we’re moving to a state with a bad 529 plan. What makes the decision easy is the tax sweetener. Getting a tax deduction for something we’d do anyway is very nice.
Someone else’s situation may be different. If you’re considering these questions, you have to compare the two (or more since there’s no reason you have to invest in your state of residence’s 529 plan) plans side by side. If the old state’s plan was solid and the new one isn’t (e.g. high maintenance fees or bad investment options), your decision will be different.
Now we come to the question of the rollover. In short, you can roll over your 529 account from one plan to another just like an IRA rollover. Whether we should, however, is the question.
On the one hand, I am a big believer in consolidation for simplicity. Keeping all the money in one place has a great deal of appeal. On the other hand, moving it is a little bit of a hassle and like I said, the old plan is very good. Incidentally, there are no tax consequences either way.
We still haven’t decided for sure, but I’m inclined to move the accounts to the new state’s plan. I think maybe we’ll establish the accounts, make sure there are no issues with administration we don’t like, then make the rollover happen. We shall see, though.
