Maine Law Requires Equal Tax Treatment for All 529 College Savings Plans

Washington, DC, June 26, 2003 - The Institute strongly supports the recent decision of Maine legislators to conform the state’s tax treatment of 529 plan withdrawals to federal tax treatment.

Background
Earlier this year, the Institute submitted a letter to the governor of Maine regarding a provision in the state’s budget bill that would have imposed a tax on distributions from 529 plans other than Maine’s own, state-sponsored 529 plan, even if those distributions were used for qualified higher education expenses.

The Institute’s letter urged Maine legislators to work to conform state law to federal treatment of withdrawals from 529 plans, noting that conformity between state and federal law would simplify tax compliance and eliminate unnecessary confusion for investors.

The Finance Authority of Maine recently announced that, in order to encourage Maine residents to save for higher education, the unequal tax treatment provision has been removed from the state’s budget bill.

ICI Position
The Institute has expressed strong support for measures to conform individual states' tax treatment of 529 plan withdrawals to federal tax treatment, and has urged legislators in Maine and Illinois to exclude the tax on the earnings portion of distributions from all 529 plans (both in-state and out-of-state plans).

Related Links
Additional information about the benefits of saving for education, including an online brochure that helps individuals better understand how state-sponsored 529 plans are helping millions of Americans save for higher education, is available on this website.