HB 787 — Revise NC 529 Program (Parental Savings Trust Fund)
Status: Introduced Nov 12, 2024 — Passed 1st Reading
Primary sponsor: Rep. Roberson (with co-sponsors listed in bill history)
Purpose
Create incentives to increase college savings among low- and moderate‑income North Carolina families by (1) establishing a matching grant program for contributions to the State’s Parental Savings Trust Fund (a Section 529 plan) targeted at eligible parents/guardians of young children, and (2) creating a state income tax deduction for certain contributions to the Trust Fund.
Key provisions
Part I — Matching Program (G.S. 116-209.25(e1))
- The State Education Assistance Authority (the Authority) must establish a matching program for eligible persons who open/contribute to a 529-qualified account and contribute to the Parental Savings Trust Fund for qualifying students.
- Match formula: $100 in State matching funds for every $50 contributed by the eligible person (i.e., a 2:1 match), up to $500 match per year.
- Lifetime cap per qualifying student: $1,500 in matching funds.
- Definitions/eligibility:
- Eligible person: a qualified parent/other interested party who (a) qualifies as a North Carolina resident under G.S. 116-143.1 and the Authority’s centralized residency process, and (b) has household income ≤ 250% of federal poverty guidelines.
- Qualifying student: a resident who meets Section 529 eligibility and is age 14 or younger.
- Administrative direction: The Authority administers the Program.
- Appropriation: $180,000 recurring from the General Fund (FY 2025–26) to the UNC Board of Governors to allocate to the Authority to provide the matching contributions.
Part II — State Tax Deduction (G.S. 105-153.5(b))
- Allows a deduction from North Carolina taxable income for contributions to an account in the Parental Savings Trust Fund:
- Up to $2,000 per individual taxpayer (or $4,000 for married filing jointly).
- Add‑back rule: If previously deducted amounts are later withdrawn and not used for qualified higher‑education expenses, the taxpayer must add back those amounts to adjusted gross income unless the withdrawal was penalty‑free under federal 529 rules due to death or permanent disability of the beneficiary.
- Effective for taxable years beginning Jan 1, 2026.
Part III — Effective dates
- Matching program and appropriation: effective July 1, 2025.
- Tax deduction: taxable years beginning on/after Jan 1, 2026.
- Other standard effective-date language as enacted.
Who is affected
- Primary beneficiaries: Low- and moderate‑income North Carolina families (household income ≤ 250% FPG) with children age 14 or younger who are state residents.
- State Education Assistance Authority and UNC Board of Governors (administration / receipt of appropriation).
- State budget: reduced General Fund revenue because of the new tax deduction; increased recurring expenditures to fund matches (initially funded at $180,000/year).
- Taxpayers who contribute to the Parental Savings Trust Fund may realize state tax savings beginning in 2026.
Fiscal and operational notes
- Appropriation provided: $180,000 recurring for FY 2025–26 to seed matching payments. At the statutory maximum $500 match per child per year, $180,000 would fund matches for up to ~360 beneficiaries in a year (actual reach depends on contributions and program take‑up).
- Longer‑term cost exposure depends on participation, match caps, and whether additional appropriations are made.
- The centralized residency determination process (G.S. 116-143.1) is used to verify eligibility.
Implementation & next steps
- The Authority must establish program rules, application and verification processes, and payment procedures consistent with the statute.
- Monitor legislative progress beyond first reading for amendments, appropriation changes, or repeal.
