It Can Pay to Switch 529 College Savings Plans / Most people pick one plan and leave their money there. A different approach may be smarter.

RACHEL ROSENTHAL for the Wall St Journal writes: When families use a 529 plan for college savings, they usually pick one of the many state-sponsored programs and stick with it. But some families can benefit from a 529 switcheroo—moving money from one state's college-savings plan to another's—or from having accounts in multiple states.

Decisions about selecting 529s and moving among them revolve around tax benefits and investment considerations. In many cases, investing in your own state's plan will qualify you for a tax deduction or credit if you live in a state with an income tax. By contrast, only a handful of states give a tax benefit when you use another state's plan. But out-of-state plans may offer lower fees or more-attractive investment options.

If you went with an out-of-state plan initially, you may still be able to qualify for a tax break by shifting that money to your home-state plan.

Say, for instance, the main appeal of the out-of-state plan was low cost. "At what point is it more advantageous to claim the state income-tax deduction versus [lower] fees? As a rule of thumb, when a child enters high school, that's usually when you see the inflection point," says Mark Kantrowitz, senior vice president and publisher of Edvisors Network Inc., which manages a suite of websites about planning and paying for college.

If your state offers an income-tax deduction or credit for rollovers—as at least nine states do to varying degrees—consider transferring enough funds to maximize this deduction, Mr. Kantrowitz says. If it doesn't, consider opening an in-state 529 plan (in addition to your out-of-state plan) and claiming the tax advantage for new contributions, he says.

Spreading It Around

Another consideration: States tend to cap the tax break you can get in a single year. Opening accounts in multiple states can make sense if you want to set aside a large sum of money today that exceeds that cap, says Joe Hurley, founder of Saving for College LLC, which publishes the college-planning website savingforcollege.com.

Let's say you and your spouse live in New York, which limits its annual tax benefit to $5,000 for single filers and $10,000 for married couples filing jointly, and you want to contribute $50,000 to a 529 plan this year.

Instead of forgoing any tax benefit on $40,000 of your contribution, you could put $10,000 in New York's plan to claim the maximum benefit and park the rest in another state's plan, then move $10,000 into the New York plan each year, Mr. Hurley says.

Beware of Penalties

Note that switching plans may not be an attractive option if you invested in your home state's plan to take advantage of tax savings and now find the fees are too high or the underlying mutual funds are performing poorly. While you can move your money to another state's plan, most states will reclaim the tax benefit you received.

In Iowa, for instance, families moving out of the home-state plan would have to pay back the dollar amount of the deductions received over the course of their investment and owe tax on investment earnings within the Iowa plan, says Michael Fitzgerald, the Iowa state treasurer and president of the College Savings Plans Network, a group that monitors information and legislation on college savings.

Savers should also keep in mind that tax rules allow families using a 529 plan to make only one change to existing investments per calendar year. This includes changing investments within a plan, changing from one in-state plan to another and moving money across state lines. Changing the beneficiary doesn't count, and you can change investments for future contributions anytime.