A rollover from one 529 plan to another 529 plan is tax-free and does not count as income on the Free Application for Federal Student Aid (FAFSA). This includes a distribution that is deposited in another 529 plan within 60 days of the distribution.
The rollover may be to a 529 plan for the same beneficiary or for a new beneficiary who is a member of the family of the old beneficiary. If the rollover is for the same beneficiary, rollovers are limited to one rollover per 12-month period.
Limitations on Rollovers
Any additional rollovers for the same beneficiary per 12-month period will be considered to be a non-qualified distribution.
If the new beneficiary is not a member of the family of the old beneficiary, the rollover will be considered to be a non-qualified distribution.
The earnings portion of a non-qualified distribution is considered to be a taxable distribution and is reported as income on the FAFSA.
See also: Can I Do a Partial 529 Plan Rollover?
Rollovers to Same-State and Out-of-State 529 Plans
Some states consider a transfer from one 529 plan in the state to another 529 plan in the same state to be an investment change and not a rollover.
Some states consider an outbound rollover to an out-of-state 529 plan to be a non-qualified distribution. The earnings portion of an outbound rollover may be subject to state income tax and recapture of state income tax benefits, but is still considered to be tax-free at the federal level. The rollover is not reported as income on the FAFSA.
See also: How to Switch 529 Plans
Rollovers to an Able Account
A rollover from a 529 plan to an ABLE account is not considered a taxable distribution and will not be reported as income on the FAFSA. However, rollovers from 529 plans to an ABLE account for a beneficiary, in combination with other contributions to the ABLE account, are limited to the annual gift tax exclusion amount ($15,000 in 2020). Any contributions beyond this limit will be considered to be a non-qualified distribution.
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- Complete Guide to Financial Aid and FAFSA