CollegeAmerica® strategy changes
ARTICLE TAKEAWAYS
- What constitutes a strategy change
- The types of transactions that are considered to be strategy changes
- Tax implications and exceptions
A CollegeAmerica strategy change is a change in investment allocation that generally occurs without any tax reporting. The Internal Revenue Service (IRS) permits two strategy changes per calendar year per CollegeAmerica owner/beneficiary combination. All accounts maintained by the account owner for the same beneficiary in CollegeAmerica, Invest529® and CollegeWealth® accounts will be aggregated for the purposes of counting strategy changes.
Transactions that are considered to be strategy changes
- One-time exchanges or multiple exchanges that are performed on the same calendar date
- One-time rebalances
- Adding an automatic exchange or rebalance plan to an existing funded account
- Updating or removing an automatic exchange or rebalance plan after it has drafted at least once
This list is not all-inclusive. Contact us if you do not see the transaction you are considering in the list above and are unsure whether it will constitute a strategy change.
Tax implications
If an investor makes more than two strategy changes in the same calendar year, they are treated as distributions. They are reported on Form 1099-Q and can be:
- Viewed as nonqualified distributions
- Subject to applicable taxes and penalties
For additional information on tax implications, refer to CollegeAmerica tax information.
Exceptions
The IRS permits the following exceptions to the two strategy changes per year rule. Funds can be reallocated, even if two strategy changes have already occurred in the current calendar year, when:
- Automatically rebalancing
- Rolling funds over into another qualified tuition program
- Changing the designated beneficiary
- Changing the account owner
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