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Common 529 plan questions


What happens if I reach the maximum contribution limit?

The Vanguard 529 Plan maximum contribution limit is $500,000. So although you can't make any additional contributions to your account once you've reached that limit, your account can continue to have the potential to grow over time.

Will I get penalized if money in my 529 savings plan isn't used for college?

If the money isn't used for qualified higher-education expenses or K–12 tuition, a 10% penalty tax on earnings (as well as federal, state, and local income taxes) may apply. However, there are a few options to get around this:

  • You can use the money to pay for more than just "college"—trade and vocational schools and apprenticeship programs,* for example.
  • You can give the money to someone else (a qualified family member) to use for college.
  • You can leave the money in the plan in case your child (or grandchild) decides to attend school later (there's no age limit on using it).

Can I roll over my existing 529 account to The Vanguard 529 Plan?

Yes, the IRS allows one tax-free rollover of a 529 account per beneficiary in a 12-month period. (If you violate the 12-month rule, you must treat the transaction as a nonqualified distribution and pay federal income tax and a 10% penalty on the earnings.)

Keep in mind that when you roll over to another state's plan, some states require you to pay the state income tax on any contributions you previously received a deduction for.

To roll over your current 529 account to The Vanguard 529 Plan (known as a direct rollover), you'll first need to open a new account in the plan and select With a rollover or transfer when asked to pick a funding method. Then print out your Incoming Rollover Form and mail it to your current plan.

If you prefer, you can instead withdraw the money in your current plan and then send us the check along with an Enrollment Application for a new account (known as an indirect rollover). In order for the transaction to be treated as a rollover, you must redeposit the money within 60 calendar days of withdrawing it, and the application must indicate that the initial contribution is an indirect rollover. You'll also need to enclose documentation that shows a breakdown of contributions and earnings in the account. (If documentation isn't included, we'll treat the entire amount as earnings, which could have negative tax consequences for you.)

Can I move money from an UGMA/UTMA account to The Vanguard 529 Plan?

Yes, you can move money from a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account to The Vanguard 529 Plan (subject to the laws of the state under which the UGMA/UTMA account was opened).

As with the original account, the money in a 529 UGMA/UTMA account will belong to the minor who owns it—meaning that it can't be transferred to a different beneficiary. In addition, the custodian will be required to transfer control of the account to the beneficiary once he or she becomes an adult.

You'll need to sell all assets in the UGMA/UTMA before moving the money to the 529, and this could trigger capital gains taxes.

Because money gifted to a child in an UGMA/UTMA account is irrevocable, you shouldn't mix UGMA/UTMA and non-UGMA/UTMA assets in the same 529 account. You should consult with a tax advisor before transferring UGMA/UTMA assets to a 529 plan.

Who can open a 529 account?

Almost anyone—parents, grandparents, other relatives, and friends. You can even open a 529 account for yourself!

Can a 529 plan be used for gifting?

Yes, 529 plans are especially popular with grandparents who want to save for a grandchild's future and reap estate planning benefits at the same time.

Beginning January 1, 2018, you can contribute up to $15,000 per year ($30,000 if married filing jointly) to a single beneficiary without triggering federal gift tax.

And if you want to gift a larger amount, you can contribute up to $75,000 ($150,000 if married filing jointly) per beneficiary and then treat it as though you contributed that amount over a 5-year period.** (However, you can't make additional gifts to the beneficiary during that time without triggering gift tax.)

Can different people open separate accounts for the same beneficiary?

Yes, more than one account can be opened on behalf of the same beneficiary. In fact, only account owners are generally eligible for state tax deductions. So if that's a benefit you're looking for, you might be better off opening a separate account for your beneficiary even if one already exists.

Who has access to the account?

Only the person who opens the account (the account owner) has access to it, unless the owner, using necessary documentation, grants permission to someone else.

So, for instance, if you're a grandparent who opens an account for your grandchild, the child's parents won't automatically have access to the account—i.e., the ability to check balances, change investments, or withdraw money from the account.

If you and your spouse open an account, keep in mind that one parent will be designated as the account owner and only that parent will automatically have access to the account.

Can I switch my investments around?

IRS regulations only allow you to exchange money from your current 529 investment options to a different option twice per calendar year. (The automatic changes within Target Enrollment Portfolios don't count.)

However, you can change the investment options for your future contributions anytime you want.

What's the difference between a 529 prepaid college plan and a 529 college savings plan?

Through a prepaid tuition plan, you buy credits for tuition, usually at a specific state college or state college system, at today's prices. If the beneficiary attends a different college or doesn't attend college at all, you may not get back the full value of the credits.

Through a college savings plan, you contribute to a fund or a portfolio of funds offered by the plan. You can use this investment to pay for tuition, room and board, books, supplies, and other qualified expenses at any accredited vocational school, college, or graduate school in the United States or abroad. You can also use your 529 college savings plan assets for K–12 tuition of up to $10,000 per student per year at a public, private or religious school.

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The Vanguard 529 College Savings Plan is a Nevada Trust administered by the office of the Nevada State Treasurer.


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Qualified higher-education expenses

These include room and board, books, supplies, tuition, and other costs at any accredited trade or vocational school, apprenticeship, college, or graduate school in the United States or abroad. If you use 529 plan money to pay for qualified expenses, you won't owe taxes or penalties.

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Qualified family member

You can change the beneficiary of your account at any time as long as the new beneficiary is a qualified family member of the original beneficiary. Here is a partial list of relatives that are considered qualified family members according to the IRS:

  • Brother, sister, stepbrother, stepsister, half-brother, or half-sister.
  • Son, daughter, or a descendant of either.
  • Father, mother, or an ancestor of either.
  • Son-in-law, daughter-in-law, brother-in-law, or sister-in-law.
  • Beneficiary's spouse or the spouse of any individual listed above.
  • First cousin.
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The person you're opening the account for, or the future student. This person doesn't have control of the money in the account, but can use the money from the plan for school costs. The account owner controls the money on behalf of the beneficiary.

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Tax law update

On December 22, 2017, the president signed new tax legislation into law. The following describes several new provisions related specifically to 529 plan accounts, beginning with the 2018 tax year:

  • Account owners can use assets to pay for qualified K-12 expenses up to $10,000 per year per student
  • Account owners can treat K-12 withdrawals as qualified expenses with respect to the federal tax benefit. The tax treatment of such withdrawals at the state level (determined by the taxpayer's state of residence) is less clear, and states may ultimately determine the treatment of these withdrawals independently. Account owners should consult their tax advisors for further guidance.
  • Account owners can roll over 529 plans to ABLE plans, up to the ABLE annual contribution limit. States may need to expand the definition of qualified withdrawals to include rollovers into ABLE plans. Without a change to the definition, such rollovers could be categorized as nonqualified withdrawals.

We'll provide more information as additional details about the effects of the tax bill become clear. We encourage you to consult a qualified tax advisor about your personal situation.