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When should you make major changes to 529 plans?

| Aug 29, 2019 | Uncategorized

529 plans are popular investment strategies for grandparents who want their grandchildren to go to college with less financial hardships. Not only can it help reduce or eliminate potential student debt, but it can also minimize taxes on your estate. It’s often recommended to begin these early in the grandchild’s life so you can accumulate enough to help them out with less taxes getting in the way.

However, life can get unpredictable. While Florida’s 529 plans are very flexible when compared to other states, you may have to make major changes and potentially have to switch from your original plan. If you’re not careful and do not update properly, you may end up getting additional taxes in the process. Here are some instances where you may have to make some significant updates:

Changing states

If you and the family end up moving to a different state, you may want to change 529 plans to get state income tax deductions. Before you do so, you need to research that state’s laws on 529 plans, because not every state shares the same regulations as Florida. The IRS does allow you to transact a rollover once every year, but if you attempt to withdraw from the original account and it counts as a nonqualified distribution, you receive a 10 percent penalty.

You may be also tempted to change plans if your grandchild starts showing interest in out-of-state colleges. Certain plans are designed specifically to benefit those who believe their family member will attend an in-state public university, while others are more flexible and will help children who want to attend an out-of-state public or private school.


If your grandchild manages to receive a good scholarship to the university they plan on attending, then you have a surplus in your 529 plan. Scholarships count as an exemption towards the 10 percent penalty, but you’ll still have to pay income tax on them.

You shouldn’t end your 529 plan because of the scholarship yet. Your grandchild may be interested in attending graduate school, which can be significantly harder to get scholarships for. Additionally, if you have another grandchild who needs funding for classes, the IRS allows you to roll over funds into the sibling’s plan anytime you want without any penalty.

A better plan opens up

Several changes for tax laws can occur annually throughout the nation and in Florida. Your 529 plan may have looked good when it first started it, but newer laws, taxes and family changes may make it look a little outdated now. You should keep an open-mind as you continue contributing to your grandchild’s future educational needs.

If you have any questions on what the best options are for a 529 plan and how you can implement it into your estate, contact an estate planning attorney to determine the best strategy for you.

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