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Federal Relief of MD taxpayers: IRS Notice 2024-23 will be in IRB: 2024-7, dated Monday 02/12/2024 @Maryland @529

IRS Notice 2024-23 provides relief from the 12-month limitation for taxpayers making rollovers to certain 529 plans. The Maryland Prepaid College Trust, which is a qualified tuition plan under section 529 has experienced numerous system issues in recent years. Many taxpayers moved their money out of MPCT because of the issues. In July, MPCT determined it owed taxpayers additional money, and section 529 only allows one tax-free rollover per 12-month period (generally).  The notice provides that the 12-month limitation for taxpayers making such rollovers will not be asserted by the IRS provided the rollover in question meets the criteria described in Notice 2024-23.

Under the issued notice, a qualified tuition program distribution will be treated as a qualified rollover (as defined in the notice) 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.

Taxpayers eligible for relief under Notice 2024-23 are not required to file Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, for such a distribution and the 10% addition to tax does not apply.

More detailed information regarding section 529 of the Internal Revenue Code may be found on the IRS.gov webpage at Topic No. 313, Qualified Tuition Programs (QTPs).