The Internal Revenue Service and the Treasury Department issued a notice Thursday to provide relief to parents who got snagged by problems with Maryland’s prepaid college savings program.
In 2022, the board overseeing Maryland’s Section 529 college savings program discovered accounting glitches when they changed from one outside technology vendor to another in 2021. The state has two college savings programs, one of which is called the Maryland Prepaid College Trust. It enables parents to lock in tuition rates for in-state colleges by buying semester credits when their children are younger. However, as a result of the glitches, parents found they didn’t have access to all the funds in the accounts when they needed to pay college tuition, and interest payments had been suspended by the board.
Last year, the state passed legislation to overhaul the Maryland 529 board and Maryland State Treasurer Dereck Davis set up a process for resolving the issues and allowing rollovers into another qualified state tuition program like the Maryland College Investment Plan.
Many taxpayers moved their money out of the Maryland Prepaid Public Trust because of the issues. Last July, MPCT determined it owed taxpayers additional money.
The IRS and the Treasury issued
Under the notice, a qualified tuition program distribution will be treated as a qualified rollover (as defined in the notice) to which the IRS will not assert any tax-related consequences if the following criteria are met:
- The taxpayer claiming relief makes a rollover to or from the designated beneficiary’s Maryland Prepaid College Trust account before Jan. 1, 2025;
- The 12-month limitation described above would otherwise apply to the rollover to or from the Maryland Prepaid College Trust account; and
- The rollover was preceded by a qualified rollover from that same designated beneficiary’s Maryland Prepaid College Trust account after Dec. 31, 2021.
If a taxpayer eligible for the relief receives a Form 1099-Q that includes a distribution that’s treated as a qualified rollover under Notice 2024-23, then the amount corresponding to the qualified rollover isn’t includible in gross income, and the taxpayer isn’t required to report the amount on the taxpayer’s tax return.
Taxpayers who are eligible for relief don’t have to file
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