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529 Questions (probably foolish ones) - moving to another state

Posted on 5/20/24 at 1:38 pm
Posted by dewster
Chicago
Member since Aug 2006
25445 posts
Posted on 5/20/24 at 1:38 pm
My daughter was born in August 2020 in Chicago. Once we had a social security number for her, we set up a 529 plan in our home state of Illinois. This was done through the state sponsored BrightStart program, which has been very impressive and easy to work with/manage. We put a lump sum into this account when she was born, then contributed to it every month until the month we relocated to another state.

In July 2022, we relocated from Chicago to Baton Rouge. That month, we opened up a 529 plan in Louisiana using their START saving's program for my daughter. We stopped contributions into the Illinois 529 plan and started contributing to her new Louisiana plan.

We have no intention of ever moving back to Illinois, and we don't see ourselves leaving Louisiana until at least retirement. Our daughter will be between 25 and 30 before we are even close to seriously considering retiring.

As of 2024, the Louisiana 529 plan has about $5,000 in total; we are contributing about $350/month into it. The Illinois 529 plan has about $16,000 in the account, but we are no longer contributing to that. Both are growing at a very respectable rate of return. As far as I know, the fees for both are both pretty low. I have no clue what we should target for this 529 plan, but that's another thread.....

My foolish question is:

What are the benefits, if any, of rolling over the approximately $16K in the Illinois plan into the Louisiana plan if I don't anticipate earning any more income in the state of Illinois again?

If this is worth doing, how can I avoid taxes on what I transfer from one plan to the other? To my knowledge, there is no deduction I can take in Louisiana for this rollover...but I could be wrong

If we leave the Illinois 529 plan alone and let it continue to grow....will there be a penalty if my daughter withdraws from her 529 plan in 16-20 years for college tuition if she no longer lives in Illinois?


This post was edited on 5/20/24 at 1:47 pm
Posted by Puffoluffagus
Savannah, GA
Member since Feb 2009
6125 posts
Posted on 5/20/24 at 1:48 pm to
quote:

What are the benefits, if any, of rolling over the approximately $16K in the Illinois plan into the Louisiana plan?


Consolidation mainly. And potentially different fund choices which may impact rate of return, if it matters.

quote:

If this is worth doing, how can I avoid taxes on what I transfer from one plan to the other?


You'd need to look at the Illinois transfer policies to see if they have a penalty to transfer out. You may have to pay back some states taxes etc. If you really want to transfer.

quote:

Is there a penalty if my daughter withdraws from her 529 plan in 16-20 years for college tuition if she no longer lives in Illinois?


Wouldn't think so. As long as your meeting Illinois qualified distributions rules, shouldn't matter where you live when you make a qualified withdrawal. Plenty of people of have state 529s in states that they don't live in. But you're also talking 15-20 years from now, rules could certainly change, but not sure if I'd worry a lot about it at this moment.
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