WASHINGTON, DC — Today, the Department of the Treasury and the Internal Revenue Service (IRS) announced special tax relief for Marylanders affected by system errors with the Maryland Prepaid College Trust (PCT) — answering the calls for such relief led by Representative Jamie Raskin (MD-08), Senator Chris Van Hollen (D-MD), and Representatives Dutch Ruppersberger (MD-02), John Sarbanes (MD-03) and David Trone (MD-06). The lawmakers had urged the IRS to allow Maryland taxpayers with PCT accounts to execute additional rollovers without incurring a 10 percent tax penalty. Affected taxpayers can now make additional qualifying rollovers before January 1, 2025 without being subject to additional taxes on the distributions.
“A system error should never cost Marylanders their hard-earned savings,” said the lawmakers. “Today’s IRS announcement will come as a welcome relief to many Marylanders. We commend the IRS for answering our calls to provide this much-needed remedy just in time for the 2024 tax filing season.”
In early 2022, the independent state agency administering Maryland’s college savings plans discovered a significant system error affecting PCT accounts. The state agency froze access to earnings on all 31,000 PCT accounts upon discovering the error, which prevented account holders from accessing their full account balances. System issues were resolved by August 2023, however, due to the unexpected freezes on account earnings that lasted for over a year, many Marylanders were unable to access or roll over their full account balances. Through no fault of their own, these individuals could have been subject to tax consequences for performing additional rollovers. IRS’s announcement today provides the leniency that will allow PCT account holders to perform additional rollovers without being subject to additional taxes.
The lawmakers asked the IRS to provide penalty relief to PCT account holders after receiving outreach from families in Maryland who were affected by the freeze. The full text of the letter is available here.