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Committee questions plan to let long‑held 529 accounts roll into Roth IRAs
Summary
VSAC told the committee it supports allowing rollovers from 529 accounts to Roth IRAs for long‑held accounts but recommended more data; department staff urged aligning Vermont’s holding period with the federal 15‑year rule rather than the draft’s 20‑year threshold.
Tom Little of the Vermont Student Assistance organization told the Ways & Means committee Wednesday that the federal tax code permits rollovers from 529 college‑savings plans to Roth IRAs for accounts that meet long holding‑period requirements, and that the draft bill would allow a similar treatment in Vermont but with a longer holding period. "The draft of section 12, we'll put that at 20 years," Little said, noting the federal rule requires 15 years.
Little said VSAC would like the committee to consider data on who would be eligible for such rollovers and how many accounts might be affected. He offered to provide VSAC’s annual report data — balances, contributions and withdrawals — to help the committee estimate fiscal and enforcement impacts. "We can do some research to see if there is available data" to show typical profiles for rollovers, he said.
Members and Department of Taxes staff cautioned about administrative complexity and the risk of misalignment with federal rules. Deputy Commissioner Rebecca Sam Roth said the department "would strongly suggest some edits" and warned that deviating from the federal 15‑year holding period could add confusion for accountants and taxpayers. She added that aligning with the federal timeline is simpler for enforcement and voluntary compliance.
Committee members asked whether Vermont benefits from hosting a direct‑sold plan and whether account owners could instead move assets to out‑of‑state plans to avoid recapture; Little said Vermont’s direct‑sold plan competes well but acknowledged the committee lacks data on how many Vermonters use other states’ plans. Little noted plan assets have grown substantially and cited a balance figure discussed in testimony in the hundreds of millions.
The committee did not adopt final language on the rollover during the hearing and asked staff and VSAC to follow up with data and drafting suggestions for future consideration.
