IRS Issues Rollover Relief for Maryland Prepaid 529 Plan

The Treasury Department and Internal Revenue Service announced Thursday special relief for taxpayers affected by recent system issues affecting the Maryland Prepaid College Trust.

As explained in Notice 2024-23, generally, federal tax law only allows one tax-free rollover in a 12-month period from one qualified tuition program — another name for 529 plans — to another for the benefit of the same beneficiary.

Under the notice, a qualified tuition program distribution will be treated as a qualified rollover if the following criteria are met:

The taxpayer 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 described in Notice 2024-23 receives a Form 1099-Q that includes a distribution that is treated as a qualified rollover under Notice 2024-23, then the amount corresponding to the qualified rollover is not includible in gross income, and the taxpayer is not required to report the amount on the taxpayer’s tax return,” the notice states.

As the notice explains, in recent years, MPCT has experienced “accounting discrepancies, administrative issues, and inconsistencies concerning the interest rate to apply to certain distributions out of MPCT accounts.”

To protect trust assets while system issues were resolved, the state agency administering MPCT froze access to MPCT interest earnings beginning in April 2022, the notice explains.