HB1085
To Adopt Federal Law Concerning Tax-deferred Tuition Savings Programs; And To Amend The Income Tax Liability For Rollover Contributions From An Arkansas Brighter Future Fund Plan To A Roth Individual Retirement Account.
AI-Generated Summary
This bill proposes to amend the Arkansas Brighter Future Fund Plan Act. It aims to update the state's laws to align with changes in federal law regarding tax-deferred tuition savings programs, specifically Section 529 plans. The legislation clarifies definitions within the Arkansas Brighter Future Fund Plan to mirror federal definitions as of January 1, 2024, instead of January 1, 2020. A significant change is the introduction of a new definition for "rollover to Roth individual retirement account," enabling certain transfers from these education savings plans to Roth IRAs. The bill also modifies provisions related to deductible contributions for tuition savings plans, including limits and carry-forward rules. It specifies that qualified withdrawals, rollovers, and rollovers to Roth IRAs from the Arkansas Brighter Future Fund Plan or other state's 529 plans will be exempt from Arkansas income tax. The intent is to ensure the Arkansas plan remains compliant with federal regulations and to offer new tax treatment options for account holders.
Potential Impact Analysis
Who Might Benefit?
The primary beneficiaries of this bill would be individuals and families in Arkansas who utilize or plan to utilize the Arkansas Brighter Future Fund Plan or similar tax-deferred tuition savings programs. This includes account owners saving for educational expenses and designated beneficiaries who will use these funds for qualified higher education. Specifically, individuals who wish to roll over funds from these education savings accounts into a Roth IRA will benefit from the new provisions, potentially allowing for tax-free distributions under certain conditions. The Arkansas Brighter Future Fund Plan administrators and the Section 529 Plan Review Committee would also benefit from updated legal frameworks that align with current federal law, ensuring the plan's continued compliance and effectiveness.
Who Might Suffer?
This bill primarily aims to update and align state law with federal changes, so direct negative impacts on specific groups are not explicitly outlined. However, if the alignment with federal law introduces new complexities or reporting requirements not currently present, there could be indirect administrative burdens for those managing the Arkansas Brighter Future Fund Plan. Additionally, while the bill introduces tax exemptions for certain distributions to Roth IRAs, taxpayers who have previously deducted contributions and then make non-qualified withdrawals or roll over to a different state's program may face recapture of those deductions, as per existing law, which this bill does not alter in that regard. The specifics of how changes to deductible contribution limits or carry-forward rules might affect individuals' tax planning are not detailed enough to identify direct negative impacts beyond potential confusion or increased complexity for some taxpayers.