Indiana introduces new rules for 529 education savings plan tax credits

House Bill 1150, introduced in Indiana on January 8, 2025, aims to enhance the College Choice 529 Education Savings Plan by introducing new tax credit provisions for contributors. This legislation is designed to incentivize families to save for higher education expenses, addressing the growing concern over student debt and the affordability of college education.

Key provisions of the bill include a tax credit for contributions made to the 529 plan, which can be claimed on annual state tax returns. However, the bill stipulates that taxpayers cannot carry forward unused credits or transfer them to others. Notably, if account owners make nonqualified withdrawals, they are required to repay a portion of the credit received, calculated based on the amount withdrawn and previous credits claimed.

The bill has sparked debates among lawmakers, particularly regarding the repayment requirements and the potential impact on families who may need to access their savings for emergencies. Critics argue that the repayment clause could deter families from utilizing the savings plan effectively, while supporters believe it is a necessary measure to prevent misuse of the funds.

Economically, House Bill 1150 could lead to increased participation in the 529 plan, potentially reducing the financial burden of college tuition for Indiana families. However, the implications of the repayment requirement may limit its effectiveness, raising questions about its long-term success.

As the bill moves through the legislative process, its fate remains uncertain. Advocates for education savings are closely monitoring discussions, hoping for amendments that could address concerns while still promoting the goal of making higher education more accessible. The next steps will involve committee reviews and potential adjustments before a final vote is taken.