Bill > A3831

Introduced Session

This bill allows distributions from a New Jersey Better Education Savings and Trust (NJBEST) account to a Roth IRA to be considered a "qualified withdrawal" for purposes of the NJBEST program and exempt from State income tax, consistent with a recent change in federal income tax law. Under section 529 of the federal Internal Revenue Code, states are authorized to establish "qualified tuition programs." More commonly referred to as "529 plans," these programs provide tax-advantaged savings accounts to help assist individuals in saving for certain higher education expenses of a designated beneficiary. Typically, the designated beneficiary is a child of the individual who opens a 529 savings account, but another family member may be designated as well. The State's 529 plans are offered as part of the NJBEST program, which is administered by the New Jersey Higher Education Student Assistance Authority (HESAA). The program offers a number of investment options to help contributions made to a program account grow over time. Provided that contributions to a NJBEST account are withdrawn to pay for a qualified higher education expense, any investment earnings that have accrued to the account will be exempt from State and federal taxes. Qualified higher education expenses include amounts spent for enrollment or attendance of the designated beneficiary at an institution of higher education such as tuition, fees, books, supplies, equipment, room and board, among other similar expenses. Recently, federal legislation was enacted to amend section 529 of the federal Internal Revenue Code to allow a "special rollover" of funds from a 529 savings account into a Roth IRA beginning after December 31, 2023, without imposing tax liability related to the withdrawal of monies from the 529 savings account. These special rollovers may occur, subject to the following conditions: (1) the 529 savings account is required to have been open for the designated beneficiary for a period of at least 15 years; (2) the Roth IRA to receive the rollover funds is required to be established in the name of the designated beneficiary of the 529 savings account; (3) the amounts to be rolled over originate from amounts deposited into the 529 savings account at least five years prior to the date of the rollover; and (4) no more than $35,000 in total funds may be rolled over, subject to annual Roth IRA contribution limits. The NJBEST statute defines a "qualified withdrawal" as "a withdrawal from an account to pay the qualified higher education expenses of the designated beneficiary of the account." The statute further defines a "qualified higher education expense" in accordance with the definition of such expenses contained in Section 529 of the Internal Revenue Code. Since a rollover from a 529 savings account into a Roth IRA would not be considered a "qualified higher education expense," any withdrawal which effectuates such a rollover would not be considered a "qualified withdrawal" under the NJBEST statutes and subject the account earnings to State income tax. The bill amends the definition of a "qualified withdrawal" under State law to include the special rollover of funds now allowed pursuant to federal law. The bill would further amend State law to exclude a special rollover funds from calculation of a taxpayer's gross income for purposes of determining income tax liability.

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Aura Dunn (R)*, 

Introduced, Referred to Assembly Higher Education Committee (on 01/13/2026)

Official Document