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Maryland families who had to make multiple withdrawals from tax-free college savings accounts shouldn鈥檛 face a tax penalty because of errors plaguing the now-discontinued state Prepaid College Trust program, federal lawmakers said Wednesday.
Access to the principal balance in more than 30,000 trust accounts was frozen for more than a year after the former Maryland 529 board discovered a widespread accounting error in early 2022.
Now families may need to make multiple rollovers to catch up with college expenses, which could lead to a 10% penalty the lawmakers want waived.
鈥淥wners of 529 accounts may initiate a single 529 plan rollover per beneficiary within a 12-month period. Executing more than one rollover within this period would make the additional rollovers taxable and potentially subject to a 10% penalty. Due to unique and unexpected circumstances, many Marylanders have already executed a rollover but need an additional opportunity to roll over their 529 PCT accounts. We ask you to help alleviate this situation facing many of our constituents,鈥� the .
Signatories to the letter were Sen. Chris Van Hollen (D-Md.) and Reps. Jamie Raskin (D-8th), Dutch Ruppersberger (D-2nd), John Sarbanes (D-3rd) and David Trone (D-6th).
鈥淭his is a matter of basic fairness for thousands of our constituents,鈥� Raskin said in a statement. 鈥淲e hope the IRS can act.鈥�
During the 2023 General Assembly session, lawmakers passed bills that previously oversaw the state鈥檚 college savings program and transferred those responsibilities to the state treasurer鈥檚 office. The legislation also phased out the Prepaid College Trust Program.
Only College Investment Plans, which function similar to a 401k and were not affected by the accounting error, will be available in the future.
In his new role managing the Maryland 529 plans, Treasurer Dereck E. Davis (D) announced Wednesday that a claims portal for holders of Maryland Prepaid College Trust plans opened.
Account holders who had an open and existing account as of Nov. 1, 2021, are eligible to submit a claim. The deadline is Dec. 31.
The opening of the portal represents the third phase of a four-phase plan Davis announced when his office was tasked with taking over management of the college savings programs.
鈥淭hroughout this process, our office has prioritized the financial integrity and solvency of the trust for all account holders, and I am pleased to have reached this point in the process,鈥� Davis said in a statement. 鈥淚t is my hope that with each step we continue to restore faith and confidence in this worthy public program.鈥�
