A reader alerted me that the interest rate on Virginia’s CollegeWealth 529 plan invested in a BB&T savings account had been lowered from 2.25% to 1.00%. The other bank in the same plan Union Bank & Trust also lowered the rate to 1.5% over $10k.
I decided to rollover my account from the Virginia plan to the Colorado CollegeInvest Stable Value Plus Plan, where money invested in a MetLife stable value fund earns 3.09% guaranteed through the end of 2015. Read more in Colorado Stable Value Plus 529 Plan: 3.09% Return Guaranteed In 2015.
The rollover process was very simple.
I opened an account with the Colorado plan online. After I had the account number, I downloaded the rollover form from the Colorado plan. The rollover form asked for the mailing address of the source plan and my account there. Although it may not be completely necessary, I also downloaded and filled out a distribution form from the Virginia plan, directing the distribution to the Colorado plan.
I mailed both forms to the Colorado plan. After about 10 days when I logged into my Virginia plan account, I saw the money was removed. After another week, the money arrived at the Colorado plan account. The breakdown between total contributions and earnings was correct.
The Virginia plan charged $25 for doing the rollover and closing the account, which I was aware of and completely OK with. The higher interest rate in the Colorado plan will make up for it in no time.
Limit in Frequency
The law sets a limit of maximum one rollover every 12 months (not calendar year). I made a note of the pertinent dates to make sure I don’t violate the frequency limit.
I expect to receive a 1099-Q from the Virginia plan next January. However, because it was a rollover, I won’t have to report it anywhere on the tax return. From IRS Publication 970:
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 benefit of a member of the beneficiary’s family (including the beneficiary’s spouse). An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution.
Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. These are not taxable distributions.
If you see a better plan, don’t be scared of the rollover paperwork. It’s very simple.