| 529 vs ESA: Summary of Distributions and Transfers Rules | ||
| 529 Plans | ESA Plans | |
| Age limit | None | The balance in the account generally must be distributed within 30 days after the earlier of the following events.
a. The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. b. The beneficiary’s death. |
| Rollover/Transfer to another beneficiary | Amount can be rolled over or transferred to a member of the beneficiary’s family | Amount can be rolled over or transferred to a member of the beneficiary’s family (including the beneficiary’s spouse) who is under age 30.
This age limitation doesn’t apply if the new beneficiary is a special needs beneficiary |
| Family members eligible for rollover/transfer:
For these purposes, the beneficiary’s family includes the beneficiary’s spouse and the following other relatives of the beneficiary. 1. Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. 2. Brother, sister, stepbrother, or stepsister. 3. Father or mother or ancestor of either. 4. Stepfather or stepmother. 5. Son or daughter of a brother or sister. 6. Brother or sister of father or mother. 7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. 8. The spouse of any individual listed above. 9. First cousin. |
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| Tax Free Distributions | Generally, distributions are tax free if they aren’t more than the beneficiary’s adjusted qualified education expenses for the year. | |
| Taxable Distributions | A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary’s adjusted qualified education expenses for the year. | |
| Early Distribution Penalty | a 10% additional tax is owed on the amount included in income, unless an exception applies. | |
| The following distributions are not subject to the 10% early distribution penalty. Distributions that are:
1. Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. 2. Made because the designated beneficiary is disabled. n. 3. Included in income because the designated beneficiary received: a. A tax-free scholarship or fellowship grant b. Veterans’ educational assistance c. Employer-provided educational assistance; or d. Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 4. Made on account of the attendance of the designated beneficiary at a U.S. military academy (such as the USMA at West Point). 5. Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit 6. Made before June 1, 2019, of an excess 2018 contribution (and any earnings on it). Some limitations apply |
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| Distributions are sometimes coordinated with other programs, do determine taxability | ||
