Free domain name is offered on new accounts only. You wont get a new free domain name with upgrade.
Yo can get your domain name transferred to us and we will take care of making changes to your nameservers to make them point your existing account. If you donot wish to transfer the domain name and keep it with 1and1 only then you just need to point nameservers of your domain name to one's which were sent in the welcome email.
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