From 529 Savings Plan to a Prepaid Tuition Plan

If performed correctly, you can rollover from a 529 college savings plan to a 529 prepaid tuition plan with no tax consequences.  This is based on the section of the U.S. tax code defining such plans, known as qualified tuition programs (QTPs).

IRS publication 970, Tax Benefits for Education, states, “Any amount distributed from a QTP is not taxable if it is rolled over to another QTP for the benefit of the same beneficiary or for the beneficiary’s family.  An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution.” 

However, limitations exist.  The publication warns, “If the rollover is to another QTP for the same beneficiary, only one rollover is allowed within 12 months of a previous transfer to any QTP for that designated beneficiary.” 

See Don Taylor, Move 529 Plan to Prepaid College Tuition? Fox Business, Oct. 6, 2014.