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Bill

SB 657

Personal Income Tax Law: deferred compensation: exclusions: long-term qualified tuition program.

2025-2026 Regular Session Introduced by Juan Alanis and 10 co-sponsors

SB 657 exempts 529 qualified education plan distributions from California state income tax, reducing taxes for families using college savings accounts but decreasing state revenue.

May 23 hearing: Held in committee and under submission.
#personalincometaxlaw #deferredcompensation #exclusions #long-termqualifiedtuitionprogram
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WeVote Research Nonpartisan
Bill Summary · SB 657

Legislative bill overview

SB 657 modifies California's personal income tax law to exclude distributions from long-term qualified tuition programs (529 plans) from taxable income for state tax purposes. The bill aligns California's tax treatment of 529 plan withdrawals with federal tax treatment, where such distributions are already tax-exempt when used for qualified education expenses.

Why is this important

California currently taxes 529 plan distributions as income, creating a state-level tax burden that doesn't exist federally. This bill would remove that additional tax, making college savings through 529 plans more attractive to California families and potentially increasing education savings. The fiscal impact depends on how many residents use 529 plans and the state's resulting tax revenue loss.

Potential points of contention

  • State revenue impact: The bill reduces state tax revenue from an unknown but potentially significant number of high-income families who use 529 plans, affecting the state budget during fiscal constraints
  • Equity concerns: 529 plans are primarily used by higher-income families with disposable income to save for education; the tax break may disproportionately benefit wealthier Californians over lower-income families
  • Program scope uncertainty: The bill's definition of "long-term qualified tuition program" and which expenses qualify for exclusion could create administrative complexity and potential disputes with the California Franchise Tax Board

Compiled from official sources — confirm details with the bill’s official record.

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