AB 2524: Personal Income Tax Law: deferred compensation: exclusions: long-term qualified tuition program.
- Session Year: 2023-2024
- House: Assembly
- Latest Version Date: 2024-05-01
Current Status:
Failed
(2024-05-16: In committee: Held under submission.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
What does this bill do?
This bill lets account owners move funds directly from long‑term college savings accounts (529 plans, including Scholarshare) into a Roth IRA without counting that transfer as California taxable income for transfers made in tax years beginning in 2024 through 2028. It also requires any bill that creates a new state tax break to state specific goals and measurable performance indicators so the Legislature can track whether the break meets those goals.
The summary is provided by generative AI which can make mistakes. For original language, please view the details in the table below.
The Personal Income Tax Law, in conformity with federal income tax law, generally defines gross income as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income. Existing law, known as the Golden State Scholarshare Trust Act, establishes the Golden State Scholarshare College Savings Trust (Scholarshare trust), under the administration of the Scholarshare Investment Board, to provide financial aid for postsecondary education costs of participating students. Existing state and federal law generally includes in gross income distributions from a qualified tuition program, as defined to include the Scholarshare trust, except as provided.
Existing federal law, the Consolidated Appropriations Act, 2023, excludes from gross income, for federal income tax purposes, distributions from a qualified tuition program that are made after December 31, 2023, and are paid in a direct trustee-to-trustee transfer to a Roth IRA, as described.
This bill would exempt from gross income distribution made from a long-term qualified tuition program during the taxable years beginning on or after January 1, 2024, and before January 1, 2029, that are paid in a direct trustee-to-trustee transfer to a Roth IRA, and would conform state tax law to those changes relating to federal law, as described above.
Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law, in conformity with federal income tax law, generally defines gross income as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income. Existing law, known as the Golden State Scholarshare Trust Act, establishes the Golden State Scholarshare College Savings Trust (Scholarshare trust), under the administration of the Scholarshare Investment Board, to provide financial aid for postsecondary education costs of participating students. Existing state and federal law generally includes in gross income distributions from a qualified tuition program, as defined to include the Scholarshare trust, except as provided.
Existing federal law, the Consolidated Appropriations Act, 2023, excludes from gross income, for federal income tax purposes, distributions from a qualified tuition program that are made after December 31, 2023, and are paid in a direct trustee-to-trustee transfer to a Roth IRA, as described.
This bill would exempt from gross income distribution made from a long-term qualified tuition program during the taxable years beginning on or after January 1, 2024, and before January 1, 2029, that are paid in a direct trustee-to-trustee transfer to a Roth IRA, and would conform state tax law to those changes relating to federal law, as described above.
Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law, in conformity with federal income tax law, generally defines gross income as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income. Existing law, known as the Golden State Scholarshare Trust Act, establishes the Golden State Scholarshare College Savings Trust (Scholarshare trust), under the administration of the Scholarshare Investment Board, to provide financial aid for postsecondary education costs of participating students. Existing state and federal law generally includes in gross income distributions from a qualified tuition program, as defined to include the Scholarshare trust, except as provided.
Existing federal law, the Consolidated Appropriations Act, 2023, excludes from gross income, for federal income tax purposes, distributions from a qualified tuition program that are made after December 31, 2023, and are paid in a direct trustee-to-trustee transfer to a Roth IRA, as described.
This bill would exempt from gross income distribution made from a long-term qualified tuition program during the taxable years beginning on or after January 1, 2024, that are paid in a direct trustee-to-trustee transfer to a Roth IRA, and would conform state tax law to those changes relating to federal law, as described above.
Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would include additional information required for any bill authorizing a new tax expenditure.
This bill would take effect immediately as a tax levy.
(a)For purposes of this section, the following terms have the following meanings as provided in the Golden State Scholarshare Trust Act (Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code):
(1)Beneficiary has the meaning set forth in subdivision (c) of Section 69980 of the Education Code.
(2)Benefit has the meaning set forth in subdivision (d) of Section 69980 of the Education Code.
(3)Participant has the meaning set forth in subdivision (h) of Section 69980 of the Education Code.
(4)Participation agreement has the meaning set forth in subdivision (i) of Section 69980 of the Education Code.
(5)Scholarshare trust has the meaning set forth in subdivision (f) of Section 69980 of the Education Code.
(b)For taxable years beginning on or after January 1, 1998, and before January 1, 2002, except as otherwise provided in subdivision (c), gross income of a beneficiary or a participant does not include any of the following:
(1)Any distribution or earnings under a Scholarshare trust participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(2)Any contribution to the Scholarshare trust on behalf of a beneficiary shall not be includable as gross income of that beneficiary.
(c)For taxable years beginning on or after January 1, 1998, and before January 1, 2002:
(1)Any distribution under a Scholarshare trust participation agreement shall be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code, as modified by Section 17085, to the extent not excluded from gross income under this part. For purposes of applying Section 72 of the Internal Revenue Code, the following apply:
(A)All Scholarshare trust accounts of which an individual is a beneficiary shall be treated as one account, except as otherwise provided.
(B)All distributions during a taxable year shall be treated as one distribution.
(C)The value of the participation agreement, income on the participation agreement, and investment in the participation agreement shall be computed as of the close of the calendar year in which the taxable year begins.
(2)A contribution by a for-profit or nonprofit entity, or by a state or local government agency, for the benefit of an owner or employee of that entity or a beneficiary whom the owner or employee has the power to designate, including the owner or employees minor children, shall be included in the gross income of that owner or employee in the year the contribution is made.
(3)For purposes of this subdivision, distribution includes any benefit furnished to a beneficiary under a participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(4)(A)Paragraph (1) shall not apply to that portion of any distribution that, within 60 days of distribution, is transferred to the credit of another beneficiary under the Scholarshare trust who is a member of the family, as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(B)Any change in the beneficiary of an interest in the Scholarshare trust shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the family, as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(d)For taxable years beginning on or after January 1, 2002, Sections 529(c) and 529(e) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors and to other definitions and special rules, respectively, shall apply, except as otherwise provided in Part 11 (commencing with Section 23001) and this part.
(e)(1)The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2)The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3)The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(f)(1)The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2)(A)The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B)The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C)In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a qualified higher education expense under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D)Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(g)(1)The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during taxable years beginning on or after January 1, 2024, and before January 1, 2029.
(2)The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, and before January 1, 2029, except that Franchise Tax Board shall be substituted for Secretary. 2029.
(3)For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A)The specific goal that the exclusion will achieve is to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B)Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the average amount of the transfer permitted under this subdivision.
(h)(1)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.
SEC. 2.Section 17140.3 of the Revenue and Taxation Code is amended to read:17140.3.Section 529 of the Internal Revenue Code, relating to qualified state tuition programs, shall apply, except as otherwise provided.
(a)Section 529(a) of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529(d) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
(c)(1)The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2)The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3)The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(d)(1)The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2)(A)The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B)The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C)In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a qualified higher education expense under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D)Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(e)(1)The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during taxable years beginning on or after January 1, 2024, and before January 1, 2029.
(2)The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, and before January 1, 2029, except that Franchise Tax Board shall be substituted for Secretary. 2029.
(3)For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A)The specific goal that the exclusion will achieve is to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B)Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the average amount of the transfer permitted under this subdivision.
(f)(1)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)For purposes of this section, the following terms have the following meanings as provided in the Golden State Scholarshare Trust Act (Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code):
(1)Beneficiary has the meaning set forth in subdivision (c) of Section 69980 of the Education Code.
(2)Benefit has the meaning set forth in subdivision (d) of Section 69980 of the Education Code.
(3)Participant has the meaning set forth in subdivision (h) of Section 69980 of the Education Code.
(4)Participation agreement has the meaning set forth in subdivision (i) of Section 69980 of the Education Code.
(5)Scholarshare trust has the meaning set forth in subdivision (f) of Section 69980 of the Education Code.
(b)For taxable years beginning on or after January 1, 1998, and before January 1, 2002, except as otherwise provided in subdivision (c), gross income of a beneficiary or a participant does not include any of the following:
(1)Any distribution or earnings under a Scholarshare trust participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(2)Any contribution to the Scholarshare trust on behalf of a beneficiary shall not be includable as gross income of that beneficiary.
(c)For taxable years beginning on or after January 1, 1998, and before January 1, 2002:
(1)Any distribution under a Scholarshare trust participation agreement shall be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code, as modified by Section 17085, to the extent not excluded from gross income under this part. For purposes of applying Section 72 of the Internal Revenue Code, the following apply:
(A)All Scholarshare trust accounts of which an individual is a beneficiary shall be treated as one account, except as otherwise provided.
(B)All distributions during a taxable year shall be treated as one distribution.
(C)The value of the participation agreement, income on the participation agreement, and investment in the participation agreement shall be computed as of the close of the calendar year in which the taxable year begins.
(2)A contribution by a for-profit or nonprofit entity, or by a state or local government agency, for the benefit of an owner or employee of that entity or a beneficiary whom the owner or employee has the power to designate, including the owner or employees minor children, shall be included in the gross income of that owner or employee in the year the contribution is made.
(3)For purposes of this subdivision, distribution includes any benefit furnished to a beneficiary under a participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(4)(A)Paragraph (1) shall not apply to that portion of any distribution that, within 60 days of distribution, is transferred to the credit of another beneficiary under the Scholarshare trust who is a member of the family, as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(B)Any change in the beneficiary of an interest in the Scholarshare trust shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the family, as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(d)For taxable years beginning on or after January 1, 2002, Sections 529(c) and 529(e) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors and to other definitions and special rules, respectively, shall apply, except as otherwise provided in Part 11 (commencing with Section 23001) and this part.
(e)(1)The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2)The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3)The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(f)(1)The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2)(A)The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B)The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C)In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a qualified higher education expense under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D)Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(g)(1)The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during taxable years beginning on or after January 1, 2024. 2024, and before January 1, 2029.
(2)The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, and before January 1, 2029, except that Franchise Tax Board shall be substituted for Secretary.
(3)For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A)The specific goal that the exclusion will achieve is to encourage additional savings for educational expenses and to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B)Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the amount of additional savings added to Scholarshare trust accounts. average amount of the transfer permitted under this subdivision.
(h)(1)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.
SEC. 2.Section 17140.3 of the Revenue and Taxation Code is amended to read:17140.3.Section 529 of the Internal Revenue Code, relating to qualified state tuition programs, shall apply, except as otherwise provided.
(a)Section 529(a) of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529(d) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
(c)(1)The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2)The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3)The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(d)(1)The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2)(A)The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B)The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C)In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a qualified higher education expense under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D)Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(e)(1)The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during taxable years beginning on or after January 1, 2024. 2024, and before January 1, 2029.
(2)The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, and before January 1, 2029, except that Franchise Tax Board shall be substituted for Secretary.
(3)For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A)The specific goal that the exclusion will achieve is to encourage additional savings for educational expenses and to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B)Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the amount of additional savings added to qualified tuition programs. average amount of the transfer permitted under this subdivision.
(f)(1)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)For purposes of this section, the following terms have the following meanings as provided in the Golden State Scholarshare Trust Act (Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code):
(1)Beneficiary has the meaning set forth in subdivision (c) of Section 69980 of the Education Code.
(2)Benefit has the meaning set forth in subdivision (d) of Section 69980 of the Education Code.
(3)Participant has the meaning set forth in subdivision (h) of Section 69980 of the Education Code.
(4)Participation agreement has the meaning set forth in subdivision (i) of Section 69980 of the Education Code.
(5)Scholarshare trust has the meaning set forth in subdivision (f) of Section 69980 of the Education Code.
(b)For taxable years beginning on or after January 1, 1998, and before January 1, 2002, except as otherwise provided in subdivision (c), gross income of a beneficiary or a participant does not include any of the following:
(1)Any distribution or earnings under a Scholarshare trust participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(2)Any contribution to the Scholarshare trust on behalf of a beneficiary shall not be includable as gross income of that beneficiary.
(c)For taxable years beginning on or after January 1, 1998, and before January 1, 2002:
(1)Any distribution under a Scholarshare trust participation agreement shall be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code, as modified by Section 17085, to the extent not excluded from gross income under this part. For purposes of applying Section 72 of the Internal Revenue Code, the following apply:
(A)All Scholarshare trust accounts of which an individual is a beneficiary shall be treated as one account, except as otherwise provided.
(B)All distributions during a taxable year shall be treated as one distribution.
(C)The value of the participation agreement, income on the participation agreement, and investment in the participation agreement shall be computed as of the close of the calendar year in which the taxable year begins.
(2)A contribution by a for-profit or nonprofit entity, or by a state or local government agency, for the benefit of an owner or employee of that entity or a beneficiary whom the owner or employee has the power to designate, including the owner or employees minor children, shall be included in the gross income of that owner or employee in the year the contribution is made.
(3)For purposes of this subdivision, distribution includes any benefit furnished to a beneficiary under a participation agreement, as provided in Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code.
(4)(A)Paragraph (1) shall not apply to that portion of any distribution that, within 60 days of distribution, is transferred to the credit of another beneficiary under the Scholarshare trust who is a member of the family, as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(B)Any change in the beneficiary of an interest in the Scholarshare trust shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the family, as that term is used in Section 529(e)(2) of the Internal Revenue Code, as amended by Section 211 of the Taxpayer Relief Act of 1997 (Public Law 105-34), of the former beneficiary of that Scholarshare trust.
(d)For taxable years beginning on or after January 1, 2002, Sections 529(c) and 529(e) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors and to other definitions and special rules, respectively, shall apply, except as otherwise provided in Part 11 (commencing with Section 23001) and this part.
(e)(1)The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2)The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3)The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(f)(1)The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2)(A)The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B)The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C)In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a qualified higher education expense under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D)Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(g)(1)The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during taxable years beginning on or after January 1, 2024.
(2)The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, except that Franchise Tax Board shall be substituted for Secretary.
(3)For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A)The specific goal that the exclusion will achieve is to encourage additional savings for educational expenses and to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B)Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the amount of additional savings added to Scholarshare trust accounts.
(g)(h)(1)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.
SEC. 2.Section 17140.3 of the Revenue and Taxation Code is amended to read:17140.3.Section 529 of the Internal Revenue Code, relating to qualified state tuition programs, shall apply, except as otherwise provided.
(a)Section 529(a) of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529(d) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
(c)(1)The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.
(2)The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.
(3)The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.
(d)(1)The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.
(2)(A)The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.
(B)The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.
(C)In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), that would be treated for federal income tax purposes as a qualified higher education expense under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.
(D)Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.
(e)(1)The amendments made by Section 126(a) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(c) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall apply with respect to distributions made during taxable years beginning on or after January 1, 2024.
(2)The amendments made by Section 126(c) of Title I of Division T of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529(d) of the Internal Revenue Code, relating to reporting, shall apply with respect to distributions made in taxable years beginning on or after January 1, 2024, except that Franchise Tax Board shall be substituted for Secretary.
(3)For the purpose of complying with Section 41, the Legislature finds and declares the following with respect to the exclusions from income for distributions allowed by this section:
(A)The specific goal that the exclusion will achieve is to encourage additional savings for educational expenses and to conform to federal law to bring tax relief and ease return preparation for taxpayers who transfer funds under this subdivision.
(B)Detailed performance indicators for the Legislature to use in determining whether the exclusion meets the goal described in subparagraph (A) are the number of taxpayers that make the transfer permitted under this subdivision and the amount of additional savings added to qualified tuition programs.
(e)(f)(1)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(a) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(8) of the Internal Revenue Code, relating to distributions for certain expenses associated with registered apprenticeship programs, shall apply.
(2)For taxable years beginning on or after January 1, 2021, the amendments made by Section 302(b)(1) of Division O of the Further Consolidated Appropriations Act, 2020 (Public Law 116-94) to Section 529(c)(9) of the Internal Revenue Code, relating to distributions for qualified education loan repayments, shall apply.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
|
Date
|
Status
|
|---|---|
| May 16, 2024 | In committee: Held under submission. |
| May 16, 2024 | Joint Rule 62(a), file notice suspended. (Page 5215.) |
| May 15, 2024 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| May 2, 2024 | Re-referred to Com. on APPR. |
| May 1, 2024 | Read second time and amended. |
| Apr 30, 2024 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 7. Noes 0.) (April 29). |
| Apr 8, 2024 | In committee: Set, second hearing. Referred to REV. & TAX. suspense file. |
| Apr 2, 2024 | Re-referred to Com. on REV. & TAX. |
| Apr 1, 2024 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Apr 1, 2024 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| Mar 4, 2024 | Referred to Com. on REV. & TAX. |
| Feb 14, 2024 | From printer. May be heard in committee March 15. |
| Feb 13, 2024 | Read first time. To print. |
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Date
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Description
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Location
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Votes
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|---|---|---|---|---|
| Apr 29, 2024 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
|
Date
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|---|---|---|
| California Student Aid Commission | * Support | Apr 8, 2024 |
| Fidelity Investments | ** Support | |
| Fiona Ma, California State Treasurer | ** Support | |
| Scholarshare Investment Board | * Support | Apr 8, 2024 |
| Securities Industry And Financial Markets Association | ** Support | |
| TIAA | * Support | Apr 8, 2024 |
Date of Hearing: May 15, 2024
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Buffy Wicks, Chair
ABPCA Bill Id:AB 2524
Author:(Ward) – As Amended Ver:May 1, 2024
Policy Committee: | Revenue and Taxation | Vote: | 7 - 0 |
|
| ||
|
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Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill excludes from gross income, under the Personal Income Tax (PIT) Law, rollover distributions made from a qualified tuition program (QTP) to a Roth Individual Retirement Account (IRA).
Specifically, this bill:
- Excludes from gross income, in conformity with federal law, a distribution made from a long-term QTP during taxable years beginning on or after January 1, 2024, and before January 1, 2029, in a direct trustee-to-trustee transfer to a Roth IRA.
- Declares the goals and performance indicators of the new exclusion.
FISCAL EFFECT:
- General Fund (GF) revenue loss of approximately $9.5 million in fiscal year (FY) 2024-25, $7.8 million in FY 2025-26, and $8.7 million in FY 2026-27. By decreasing PIT revenue, this bill also likely decreases Proposition 98 GF spending by approximately 40% of the GF revenue loss (the exact amount depends on the specific amount of the annual Proposition 98 guarantee).
- Costs of an unknown, but potentially absorbable, amount to the Franchise Tax Board to administer the exclusion.
According to the LAO, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.
COMMENTS:
- Purpose. According to the author:
AB 2524 gives individuals and families with money in a 529 account much-need flexibility so they can roll over funds into a Roth-IRA without additional taxation and penalties. In turn, it gives them confidence to invest more money into these accounts knowing that money is safe no matter what circumstances life brings.
This bill is sponsored by State Treasurer Fiona Ma and supported by the California Student Aid Commission and investment entities.
- Scholarshare 529 and Other QTPs. Scholarshare 529 is a state-sponsored, tax-advantaged QTP, a college savings investment program helping families plan for the costs of higher education. The plan provides families with a diverse set of low-cost investment options, tax-deferred growth on investments, and tax-free withdrawals on distributions used for qualified education expenses. Recent changes to federal law expanded distributions from a QTP that may be excluded from gross income to include distributions made after December 31, 2023, to a Roth IRA, with certain limitations on the amount transferred.
This bill conforms to federal law regarding distributions to a Roth IRA made during the next five taxable years, thus allowing a QTP beneficiary to transfer certain amounts from their QTP account into a Roth IRA without being taxed on the distribution. Although federal conformity eases tax administration for both the government and taxpayer, providing this income exclusion would also result in a tax expenditure that benefits Californians with the means to save for higher education or retirement, with no such benefits for Californians who may not be able to afford to save.
- Related Legislation. AB 629 (Wallis) is substantively similar to this bill. AB 629 was held on this committee’s suspense file.
- Prior Legislation. AB 340 (Ward), Chapter 557, Statutes of 2021, conformed Scholarshare 529 to changes in federal tax law that expanded allowable distributions from QTPs to include expenses related to registered apprenticeship program participation and student loan repayment.
Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081
Date of Hearing: April 29, 2024
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Jacqui Irwin, Chair
ABPCA Bill Id:AB 2524 (
Author:Ward) – As Amended Ver:April 1, 2024
SUSPENSE
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Personal Income Tax Law: deferred compensation: exclusions: long-term qualified tuition program
SUMMARY: Excludes from gross income, under the Personal Income Tax (PIT) Law, rollover distributions made from a qualified tuition program (QTP) to a Roth Individual Retirement Account (IRA) under certain conditions. Specifically, this bill:
- Conforms, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, to federal law regarding the treatment of amounts distributed from a QTP to a Roth IRA, as specified.
- Replaces references to "Secretary" with the "Franchise Tax Board" (FTB) in relation to requirements governing the reporting of certain information.
- Finds and declares, for the purposes of complying with Revenue and Taxation Code (R&TC) Section 41 that the goal of this bill is to conform to federal law to bring tax relief, and ease return preparation for taxpayers who transfer funds under this bill. The Legislature may use the number of taxpayers that make the transfer permitted by this bill, and the average amount of the transfer permitted, as performance metrics to measure whether this bill meets its stated goal.
- Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW exempts from taxation a QTP, meaning gains on amounts contributed accumulate tax free, and excludes from gross income distributions from a QTP if those amounts are used for an incurred qualified higher education expense. If amounts distributed from a QTP are in excess of incurred qualified higher education expenses, the excess amount is subject to taxation and an additional 10% penalty. Beginning in 2024, amounts distributed from a QTP, which has been maintained for 15 years, are excluded from gross income if those amounts are distributed to a Roth IRA and do not exceed $35,000 in the aggregate. A state, state agency, or any instrumentality of a state may establish a QTP. (Internal Revenue Code (IRC) Section 529.) Additionally, Roth IRAs are exempt from taxation, and qualified distributions from a Roth IRA are excluded from gross income, as specified, but contributions to a Roth IRA are subject to tax and limited based on modified adjusted gross income (MAGI). (IRC Section 408A.)
EXISTING STATE LAW automatically conforms to the federal treatment of Roth IRAs. California conforms, with certain modifications, to the federal rules governing QTPs, as of January 1, 2015. (R&TC Section 17140.3.) The Golden State ScholarShare College Savings Trust is California's QTP. (R&TC Section 17140.)
FISCAL EFFECT: The FTB, in its analysis of this bill, estimates a revenue loss of $9.5 million in fiscal year (FY) 2024-25, $7.8 million in the 2025-26 FY, and $8.7 million in the 2026-27 FY.
COMMENTS:
- The author has provided the following statement in support of this bill:
AB 2524 gives individuals and families with money in a 529 account much-needed flexibility so they can roll over funds into a Roth-IRA without additional taxation and penalties. In turn, it gives them confidence to invest more money into these accounts knowing that money is safe no matter what circumstances life brings.
- Fiona Ma, the California State Treasurer, writing as sponsor of this bill, notes, in part:
Presently, student loan debt has reached $1.6 trillion nationally and California has the highest number of borrowers with 3.8 million out of the 43.6 million [borrowers], with an average balance of $37,000. Yet, many families delay or decline saving in a 529 account for fear of being penalized if their child does not ultimately pursue a postsecondary education.
- The Securities Industry and Financial Markets Association, writing in support of this bill, note, in part:
There, however, can be a fear of using a 529 plan. What, for example, happens if your child or grandchild gets a scholarship, chooses a less expensive college alternative, or decides not to go to college at all? Fear of overfunding a 529 plan, and subsequently being subject to significant tax penalties, may cause families to save less or underfund.
- Committee Staff Comments:
- QTPs: Existing law authorizes individuals to make after-tax contributions to a QTP. These are commonly referred to as "529 plans" as the construction of these QTPs is governed by IRC Section 529. There are two types of QTPs: prepaid tuition plans and education savings plans. Prepaid tuition plans allow a contributor to purchase units or credits at participating institutions of higher education for future tuition and fee costs. Education savings plans have greater flexibility and allow a contributor to open an investment account that accumulates earnings and makes disbursements for qualifying education expenses without being subject to income taxation[1]. In 2023, the Consolidated Appropriations Act was enacted, which expanded distributions from a QTP that may be excluded from gross income to include distributions made after December 31, 2023 to a Roth IRA, with certain limitations on the amount transferred.
- Tax benefits are a form of financial aid to students: According to a report published by the Legislative Analyst's Office in 2017, tax benefits are one of three main types of financial aid for students in California[2]. The other two types of financial aid are "loans" and "gift aid." This bill provides financial aid to certain taxpayers that rollover amounts from a QTP into a Roth IRA in the form of a tax benefit.
- Gross income exclusions for education savings plans benefit wealthy taxpayers: A report published by the Congressional Budget Office in 2018, "Distribution of Federal Support for Students Pursuing Higher Education in 2016", underscores that wealthy taxpayers overwhelmingly benefit from gross income exclusions for education savings plans. The report noted that 97% of the amount excluded as earnings in qualified education savings plans, including QTPs, benefitted the highest quintile of taxpayers. Of that 97% that was excluded from gross income by the highest quintile, 47% was excluded by the top 1% of earners, 35% was excluded by the top 2% to 5% of earners, 10% was excluded by the top 6% to 9% of earners, and 5% was excluded by the top 10% to 19% of earners.
- Roth IRAs: Roth IRAs provide taxpayers a vehicle to accumulate earnings for retirement in a tax-free account and to make distributions that are excluded from gross income when that taxpayer reaches 59.5 years of age. Taxpayers are prohibited from contributing to a Roth IRA if they are single filers with MAGI in excess of $144,000, or if they are married and filing jointly with MAGI in excess of $214,000.
- This bill: If a taxpayer has a QTP that has been maintained for 15 years, this bill would allow distributions from that QTP to a Roth IRA of no more than $35,000 in the aggregate. The State's QTP would also benefit from this treatment. In other words, this bill would not penalize taxpayers who, for whatever reason, did not spend the entire balance of a QTP on "qualified higher education expenses." Additionally, given Roth IRAs are restricted by MAGI, this bill's benefit to wealthier taxpayers would be limited relative to the benefit enjoyed by wealthy taxpayers for gross income exclusions of qualified education savings plans, generally.
- FTB technical consideration: In its analysis of this bill, the FTB notes that on Page 5, Lines 25 and 26, and on Page 8, Lines 3 and 4, the phrase "except that the 'FTB' shall be substituted for 'Secretary'" should be deleted as R&TC Section 17024.5(h)(7) already provides for the substitution when applying any section of the IRC. The Committee may wish to consider deleting this phrase.
- What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This bill authorizes a gross income exclusion related to QTP rollovers to Roth IRAs, thereby enacting a tax expenditure.
- Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the Corporation Tax Law, and the Sales and Use Tax Law introduced on or after January 1, 2020. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote. These requirements must be satisfied before a bill can receive a vote in this Committee. This bill complies with R&TC Section 41, and includes an appropriate five-year sunset.
- Related legislation:
- AB 629 (Wallis) is substantively similar to this bill. AB 629 was held on the Assembly Appropriations Committee's Suspense File.
- AB 1026 (Ta) would allow a qualified taxpayer a deduction for contributions made to a QTP, as specified. AB 1026 was never heard by this Committee.
- Previous legislation:
- AB 340 (Ward), Chapter 557, Statutes of 2021, conformed the existing Golden State ScholarShare Trust to the federal QTP definition of qualified higher education expenses by adding apprenticeship program expenses, and principal and interest of qualified education loan expenses.
- AB 211 (Calderon), of the 2019-20 Legislative Session, would have allowed a gross income exclusion for contributions made by a qualified taxpayer during the taxable year to a QTP. AB 211 was vetoed by the Governor, who cited in his veto message that this proposal would be "better addressed through the annual budget process."
REGISTERED SUPPORT / OPPOSITION:
Support
Fiona Ma, California State Treasurer (Sponsor)
Fidelity Investments
Securities Industry and Financial Markets Association
Opposition
None on file
Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098
"An Introduction to 529 Plans," U.S. Securities & Exchange Commission (SEC) Office of Investor Education & Advocacy (May 29, 2018). <https://www.sec.gov/about/reports-publications/investor-publications/introduction-529-plans> (accessed March 2023) ↑
"Overview of Student Loans", Legislative Analyst's Office (2017). <https://lao.ca.gov/handouts/education/2017
/Student-Loans-Overview-082917.pdf> (accessed March 2023) ↑
Date of Hearing: April 8, 2024
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Jacqui Irwin, Chair
ABPCA Bill Id:AB 2524 (
Author:Ward) – As Amended Ver:April 1, 2024
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Personal Income Tax Law: deferred compensation: exclusions: long-term qualified tuition program
SUMMARY: Excludes from gross income, under the Personal Income Tax (PIT) Law, rollover distributions made from a qualified tuition program (QTP) to a Roth Individual Retirement Account (IRA) under certain conditions. Specifically, this bill:
- Conforms, for taxable years beginning on or after January 1, 2024, and before January 1, 2029, to federal law regarding the treatment of amounts distributed from a QTP to a Roth IRA, as specified.
- Replaces references to "Secretary" with the "Franchise Tax Board" (FTB) in relation to requirements governing the reporting of certain information.
- Finds and declares, for the purposes of complying with Revenue and Taxation Code (R&TC) Section 41 that the goal of this bill is to conform to federal law to bring tax relief, and ease return preparation for taxpayers who transfer funds under this bill. The Legislature may use the number of taxpayers that make the transfer permitted by this bill, and the average amount of the transfer permitted, as performance metrics to measure whether this bill meets its stated goal.
- Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW exempts from taxation a QTP, meaning gains on amounts contributed accumulate tax free, and excludes from gross income distributions from a QTP if those amounts are used for an incurred qualified higher education expense. If amounts distributed from a QTP are in excess of incurred qualified higher education expenses, the excess amount is subject to taxation and an additional 10% penalty. Beginning in 2024, amounts distributed from a QTP, which has been maintained for 15 years, are excluded from gross income if those amounts are distributed to a Roth IRA and do not exceed $35,000 in the aggregate. A state, state agency, or any instrumentality of a state may establish a QTP. (Internal Revenue Code (IRC) Section 529.) Additionally, Roth IRAs are exempt from taxation, and qualified distributions from a Roth IRA are excluded from gross income, as specified, but contributions to a Roth IRA are subject to tax and limited based on modified adjusted gross income (MAGI). (IRC Section 408A.)
EXISTING STATE LAW automatically conforms to the federal treatment of Roth IRAs. California conforms, with certain modifications, to the federal rules governing QTPs, as of January 1, 2015. (R&TC Section 17140.3.) The Golden State ScholarShare College Savings Trust is California's QTP. (R&TC Section 17140.)
FISCAL EFFECT: The FTB, in its analysis of this bill, estimates a revenue loss of $9.5 million in fiscal year (FY) 2024-25, $7.8 million in the 2025-26 FY, and $8.7 million in the 2026-27 FY.
COMMENTS:
- The author has provided the following statement in support of this bill:
AB 2524 gives individuals and families with money in a 529 account much-needed flexibility so they can roll over funds into a Roth-IRA without additional taxation and penalties. In turn, it gives them confidence to invest more money into these accounts knowing that money is safe no matter what circumstances life brings.
- Fiona Ma, the California State Treasurer, writing as sponsor of this bill, notes, in part:
Presently, student loan debt has reached $1.6 trillion nationally and California has the highest number of borrowers with 3.8 million out of the 43.6 million [borrowers], with an average balance of $37,000. Yet, many families delay or decline saving in a 529 account for fear of being penalized if their child does not ultimately pursue a postsecondary education.
- The Securities Industry and Financial Markets Association, writing in support of this bill, note, in part:
There, however, can be a fear of using a 529 plan. What, for example, happens if your child or grandchild gets a scholarship, chooses a less expensive college alternative, or decides not to go to college at all? Fear of overfunding a 529 plan, and subsequently being subject to significant tax penalties, may cause families to save less or underfund.
- Committee Staff Comments:
- QTPs: Existing law authorizes individuals to make after-tax contributions to a QTP. These are commonly referred to as "529 plans" as the construction of these QTPs is governed by IRC Section 529. There are two types of QTPs: prepaid tuition plans and education savings plans. Prepaid tuition plans allow a contributor to purchase units or credits at participating institutions of higher education for future tuition and fee costs. Education savings plans have greater flexibility and allow a contributor to open an investment account that accumulates earnings and makes disbursements for qualifying education expenses without being subject to income taxation[1]. In 2023, the Consolidated Appropriations Act was enacted, which expanded distributions from a QTP that may be excluded from gross income to include distributions made after December 31, 2023 to a Roth IRA, with certain limitations on the amount transferred.
- Tax benefits are a form of financial aid to students: According to a report published by the Legislative Analyst's Office in 2017, tax benefits are one of three main types of financial aid for students in California[2]. The other two types of financial aid are "loans" and "gift aid." This bill provides financial aid to certain taxpayers that rollover amounts from a QTP into a Roth IRA in the form of a tax benefit.
- Gross income exclusions for education savings plans benefit wealthy taxpayers: A report published by the Congressional Budget Office in 2018, "Distribution of Federal Support for Students Pursuing Higher Education in 2016", underscores that wealthy taxpayers overwhelmingly benefit from gross income exclusions for education savings plans. The report noted that 97% of the amount excluded as earnings in qualified education savings plans, including QTPs, benefitted the highest quintile of taxpayers. Of that 97% that was excluded from gross income by the highest quintile, 47% was excluded by the top 1% of earners, 35% was excluded by the top 2% to 5% of earners, 10% was excluded by the top 6% to 9% of earners, and 5% was excluded by the top 10% to 19% of earners.
- Roth IRAs: Roth IRAs provide taxpayers a vehicle to accumulate earnings for retirement in a tax-free account and to make distributions that are excluded from gross income when that taxpayer reaches 59.5 years of age. Taxpayers are prohibited from contributing to a Roth IRA if they are single filers with MAGI in excess of $144,000, or if they are married and filing jointly with MAGI in excess of $214,000.
- This bill: If a taxpayer has a QTP that has been maintained for 15 years, this bill would allow distributions from that QTP to a Roth IRA of no more than $35,000 in the aggregate. The State's QTP would also benefit from this treatment. In other words, this bill would not penalize taxpayers who, for whatever reason, did not spend the entire balance of a QTP on "qualified higher education expenses." Additionally, given Roth IRAs are restricted by MAGI, this bill's benefit to wealthier taxpayers would be limited relative to the benefit enjoyed by wealthy taxpayers for gross income exclusions of qualified education savings plans, generally.
- FTB technical consideration: In its analysis of this bill, the FTB notes that on Page 5, Lines 25 and 26, and on Page 8, Lines 3 and 4, the phrase "except that the 'FTB' shall be substituted for 'Secretary'" should be deleted as R&TC Section 17024.5(h)(7) already provides for the substitution when applying any section of the IRC. The Committee may wish to consider deleting this phrase.
- What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This bill authorizes a gross income exclusion related to QTP rollovers to Roth IRAs, thereby enacting a tax expenditure.
- Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the Corporation Tax Law, and the Sales and Use Tax Law introduced on or after January 1, 2020. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote. These requirements must be satisfied before a bill can receive a vote in this Committee. This bill complies with R&TC Section 41, and includes an appropriate five-year sunset.
- Related legislation:
- AB 629 (Wallis) is substantively similar to this bill. AB 629 was held on the Assembly Appropriations Committee's Suspense File.
- AB 1026 (Ta) would allow a qualified taxpayer a deduction for contributions made to a QTP, as specified. AB 1026 was never heard by this Committee.
- Previous legislation:
- AB 340 (Ward), Chapter 557, Statutes of 2021, conformed the existing Golden State ScholarShare Trust to the federal QTP definition of qualified higher education expenses by adding apprenticeship program expenses, and principal and interest of qualified education loan expenses.
- AB 211 (Calderon), of the 2019-20 Legislative Session, would have allowed a gross income exclusion for contributions made by a qualified taxpayer during the taxable year to a QTP. AB 211 was vetoed by the Governor, who cited in his veto message that this proposal would be "better addressed through the annual budget process."
REGISTERED SUPPORT / OPPOSITION:
Support
Fiona Ma, California State Treasurer (Sponsor)
Securities Industry and Financial Markets Association
Opposition
None on file
Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098
"An Introduction to 529 Plans," U.S. Securities & Exchange Commission (SEC) Office of Investor Education & Advocacy (May 29, 2018). <https://www.sec.gov/about/reports-publications/investor-publications/introduction-529-plans> (accessed March 2023) ↑
"Overview of Student Loans", Legislative Analyst's Office (2017). <https://lao.ca.gov/handouts/education/2017
/Student-Loans-Overview-082917.pdf> (accessed March 2023) ↑
Discussed in Hearing
8MIN
Assembly Standing Committee on Revenue and Taxation
Bill Author
Bill Co-Author(s):