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Important Federal and State Tax Updates
Tax Reform
Beginning January 1, 2024, a rollover from a 529 plan account to a beneficiary’s Roth IRA account can be made without incurring federal and Montana State income tax or penalties. A Roth IRA rollover is subject to several significant conditions including:
- The account must be maintained for at least the 15-year period ending on the date of the Roth IRA rollover
- A Roth IRA rollover cannot exceed the total amount contributed to the account, and earnings on those contributions, before the 5-year period ending on the date of the Roth IRA rollover
- A lifetime maximum of $35,000 per beneficiary
- The Roth IRA account must be maintained for the benefit of the beneficiary of the 529 plan account
- 529 plan assets must be sent directly to the Roth IRA
- The Roth IRA contribution is subject to the Roth IRA contribution limit for the taxable year applicable to the529 beneficiary for all individual retirement plans maintained for the benefit of the 529 beneficiary
On December 22nd, 2017, new federal tax reform legislation was signed into law. The law amends Section 529 of the Code to permit withdrawals from 529 Plan accounts up to $10,000 per year per student (in the aggregate across all Qualified Tuition Programs for that student) for tuition expenses in connection with enrollment and attendance at an elementary or secondary public, private or religious school (K-12 Tuition). The law also permits rollovers from a 529 Plan account to a Qualified ABLE Program account (ABLE Rollover Distribution) up to the annual contribution limit for Qualified ABLE Program accounts.
Secure Act
On December 20th, 2019, the SECURE Act was signed into law. The SECURE Act amends Section 529 of the Code to permit withdrawals to pay for expenses for apprenticeship programs registered and certified with the Secretary of Labor under the National Apprenticeship Act (Apprenticeship Program Expenses) and to pay principal and interest on certain qualified education loans (Education Loan Repayments) for a beneficiary or any of the beneficiary’s siblings. The loan repayment provisions apply to repayments up to a lifetime maximum of $10,000 per individual. The effective date of the SECURE Act is January 1st, 2019.
Montana Taxation
of Distributions for K-12 Tuition, Apprenticeship Program Expenses, and Education Loan Repayments
The Montana Department of Revenue has not yet determined whether expanded K-12 Expenses or Credentialing Expenses are qualified expenses for Montana state income tax purposes.
Effective April 30, 2021, Montana law was updated to treat distributions for K-12 Tuition, Apprenticeship Program Expenses, and Education Loan Repayments as qualified withdrawals for Montana state income tax purposes. This means that, beginning April 30, 2021, any distributions from an account to pay these types of expenses will not be subject to the Montana state recapture tax on contributions previously deducted.
The Montana Department of Revenue has not provided guidance on the State tax law treatment of ABLE Rollover Distributions.
Montana taxpayers should consult their tax advisors before making a contribution or withdrawal for K-12 Tuition, Apprenticeship Program Expenses, Education Loan Repayments, or initiating an ABLE Rollover Distribution. Achieve Montana account owners in other states should seek guidance from the state in which they pay taxes.
Please read the Program Description for additional information. You can also reach our Client Service Representatives by email at clientservice@achievemontana529.com or by phone at 1-877-486-9271, Monday through Friday from 7 a.m. to 6 p.m., Mountain Time.