HB1150 updates Indiana’s tax treatment of College Choice 529 education savings plan distributions to conform to a federal change in the SECURE 2.0 Act. Under current law, 529 withdrawals used for qualified higher education expenses are exempt from Indiana adjusted gross income tax, and nonqualified withdrawals can trigger state tax consequences and repayment of previously claimed state credits. This bill adds a new state tax exemption for certain 529 distributions that are not used for qualified higher education expenses but that meet the requirements of Section 126 of SECURE 2.0, which is the federal provision allowing limited tax-free rollovers from 529 plans to Roth IRAs under specified conditions.
The bill also amends Indiana’s 529 credit and program administration statutes so that these SECURE 2.0-compliant distributions are not treated as nonqualified withdrawals for purposes of the state’s penalty and repayment rules. It revises the Indiana Education Savings Authority’s authority to establish penalties and procedures, and it clarifies that the new exemption applies retroactively to taxable years beginning after December 31, 2024. The bill includes an emergency clause and a sunset date for one section in 2027, indicating an intent to implement the change quickly while limiting the duration of the temporary conforming provision.
The practical impact is to reduce or eliminate Indiana income tax consequences for eligible 529-to-Roth IRA rollover distributions that satisfy federal requirements, while preserving the existing tax exemption for ordinary qualified education withdrawals. It also protects account owners from state repayment obligations tied to the 529 contribution credit when the distribution falls within the new federal safe harbor. The bill primarily affects 529 account owners, beneficiaries, the Indiana Education Savings Authority, and the Department of Revenue.
The general sentiment suggested by the bill text is favorable toward aligning Indiana law with federal tax law and preserving tax advantages for college savings accounts. Because there are no committee transcripts or recorded votes provided, there is no evidence of formal opposition or debate in the available materials. The bill appears technical and conforming in nature, with its main policy goal being to ensure Indiana taxpayers can benefit from the SECURE 2.0 rollover option without unintended state tax penalties.
Notable points of potential contention are limited in the available record, but the bill does touch on broader policy questions about whether 529 savings should be used for retirement savings through Roth IRA rollovers rather than solely for education. It also preserves Indiana’s existing framework for penalties on nonqualified withdrawals, except where federal law now requires an exception, so any disagreement would likely center on tax conformity, revenue effects, and the scope of permissible 529 account uses rather than on the mechanics of the bill itself.
Impact
HB1150 amends IC 6-3 and IC 21-9 to exempt certain SECURE 2.0-compliant 529 distributions from Indiana adjusted gross income tax, to exclude those distributions from the state’s nonqualified-withdrawal treatment, and to prevent related repayment of the 529 contribution tax credit. It also updates the Indiana Education Savings Authority’s powers and the state’s 529 program tax provisions to conform to federal law, with retroactive application to taxable years beginning after December 31, 2024.
Sentiment
The available materials suggest broad, technical support for the bill’s purpose: conforming Indiana law to a federal tax change and preserving tax benefits for eligible 529 account holders. No committee testimony or vote record is provided, so there is no documented opposition in the record supplied. The bill appears noncontroversial on its face, though it implicates the policy choice of allowing 529 funds to be rolled into Roth IRAs under federal rules.
Contention
The main substantive issue is whether Indiana should follow the federal SECURE 2.0 treatment of certain 529-to-Roth IRA rollovers and exempt them from state tax and repayment rules. Potential concerns would likely involve revenue loss, the use of education savings for retirement purposes, and the administrative need to track which withdrawals qualify under federal requirements. No specific opponents or supporters are identified in the provided record.