Is a rollover from one account to another considered a distribution?

Yes. When funds are removed from an account to complete a rollover, that removal of funds is considered a distribution. The repayment penalty will apply if funds are removed from a VHEIP account and rolled over to an out-of-state account. Vermont does not have a penalty exception for rollovers to out-of-state accounts. On the other hand, if funds are rolled over to a VHEIP account from an out-of-state account, the contribution to the VHEIP account will qualify for Vermont’s VHEIP tax credit.