529 College Savings Plan funds can only be exchanged once per year

ManOnFire · #1 Dec 8, '11, 6:08 pm

I was surprised to learn that the US IRS only allows shifts (exchanges) of funds once per calendar year from one 529 mutual fund from my daughter's to another 529 plan within her account. Shifting to cash can only occur once per year? Beware and plan accordingly. It seems unreasonable for them to be so restrictive with money. I wonder when, why, and by whom that change went into effect. How about once per quarter?

Cat Herder · #2 Dec 8, '11, 8:05 pm

Why not open an ESA?

ManOnFire · #3 Dec 11, '11, 10:18 am

Quote:

Originally Posted by Cat Herder

Why not open an ESA?

Thanks, but contributions are limited to $2K per year.

Cat Herder · #4 Dec 11, '11, 1:46 pm

Quote:

Originally Posted by ManOnFire

Thanks, but contributions are limited to $2K per year.

Then what you do is use both, but in a way that is compatible with the asset allocation that you want.

Since you want to shift to cash, that means one of two things:
1. Your daughter is almost college age; or
2. You're trying to time the market by getting in and out of stocks when you think they'll go up and down respectively.

I really hope it's (1), in which case you should be in bonds or cash anyway. If it's (2)... I think you already know that market timing generally results in failure. But if you MUST time the market, do so in the ESA and leave the 529 in an age-appropriate investment option: more bonds and less stocks as they get close to college age.