House Taxation Committee hears bill to increase tax deduction for 529 contributions

The House Taxation Committee heard testimony on House Bill 845, sponsored by Representative Julie Darling, which would increase Montana’s income-tax deduction for contributions to family education savings accounts (commonly called 529 plans) and add an inflation adjustment tied to the Consumer Price Index.

Representative Julie Darling, the bill’s sponsor, said HB 845 is intended to mirror prior statutory changes made for other state deductions and to make the 529 deduction more flexible. "We just want to allow for more flexibility as time goes on," Darling said, asking the committee for a due pass at the close of the hearing.

Proponents urged the committee to approve the change. Bill Warden of the National Association of Insurance and Financial Advisors said his family benefited from early contributions: "Because my son did one of these, my grandson... will have no debt," Warden said. Peter Dan Sullivan, a certified financial planner with Sullivan Financial Group, told the committee that higher-education costs have risen substantially since these deductions were set in statute; he cited past average in-state costs of about $10,500 versus a current figure he said is roughly $25,500 and argued that the deduction has not kept pace with inflation.

Department of Revenue tax specialist Rachel Milne testified as an informational witness and answered technical questions about who may claim the deduction. Milne explained that the deduction is claimed by the contributor or owner of the account and that a grandparent who owns an account for a Montana-resident beneficiary can take the deduction, even though the bill text does not explicitly use the word "grandchild." Milne cited the statutory guidance referenced in committee as MCA number "15302120." She also confirmed that federal rules governing 529s affect participation and eligibility at the federal level.

Committee members pressed for practical details. Members asked what happens if the beneficiary does not use funds for qualified education; Sullivan described options including nonqualified withdrawals (with the gains taxed and a state penalty on gains), owner withdrawals, and a 2024 law permitting transfers from 529 accounts into a beneficiary’s Roth IRA of up to $7,000 per year, with a lifetime cap of $35,000. One member observed that the current Montana deduction is $3,000 and estimated that at the highest tax rate that would yield about $177 in tax savings.

Representative Julie Darling closed by saying HB 845 mirrors Senate Bill 550 (2023) and would increase the deductible amount while indexing it to inflation so adjustments would be automatic in future sessions. She "requested a due pass" from the committee; the committee did not take a vote during the hearing. Chair Fielder closed the hearing and reminded members of scheduled executive actions for the following day.