House Education Committee approves bill to let unused Arkansas 529 funds roll into Roth-style accounts; $190,000 GR impact cited

The House Education Committee voted to pass HB1085 as amended, allowing owners of Arkansas 529 education savings accounts to divert unused, after-tax funds into a Roth IRA–style rollover instead of triggering a taxable distribution.

The change was presented by Representative Brown during the committee’s meeting. Representative Brown said the bill would align treatment for leftover 529 funds with a Roth-style rollover, and told the committee, “the Arkansas 529 plan is the fourth rated fourth highest rated 529 plan in the country. So I think that's that's pretty magnificent. Our contributions are considerable.”

Committee members focused on the bill’s fiscal effect. Keith Lender of the Department of Finance and Administration told lawmakers that the new rollover option would eliminate some previously taxable events and therefore reduce general revenue. “If these would have been taxable events in the past, they won't be anymore. So this will be a reduction in general revenue, not money being paid out,” Lender said. The fiscal-impact estimate shown to the committee projects a reduction in general revenue of about $190,000.

Representative Beck questioned why the proposal was considered in the education committee rather than a tax committee, saying, “this bill really does nothing in terms of education… It does change tax and revenues for the state. So why is this not [a] tax revenue bill?” Committee members explained the bill was routed to education because it amends provisions tied to the state’s education code and the Brighter Future/529 structure.

Committee members also asked about implementation timing. Representative Cozart asked about the timeframe needed for tax-form and computer updates; committee discussion noted that the department expected it could implement the change when the bill became effective. A committee member summarized: the expected revenue reduction reflects taxable events that will no longer occur because account owners will have an option to roll funds after tax into a Roth-style account rather than withdraw them and trigger income tax on growth.

There was no public testimony for or against the bill in the hearing. Representative Brown closed for the bill and asked for a favorable vote. A voice vote was taken and the committee’s motion to “do pass as amended” was approved; the committee chair announced, “Congratulations to Representative Brown. Your bill has passed.”

The committee also used the meeting to announce a joint special order of business with the Senate to review the National Assessment of Educational Progress (NAEP) scores with the state education secretary; that calendar announcement did not alter the committee’s action on HB1085.