us-mt/regulation/title-42/chapter-42-15/subchapter-42-15-8/rule-42-15-803 — WITHDRAWALS FROM FAMILY EDUCATION SAVINGS PROGRAM ACCOUNTS AND RECAPTURE TAX

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us-mt/regulation/title-42/chapter-42-15/subchapter-42-15-8/rule-42-15-803 — WITHDRAWALS FROM FAMILY EDUCATION SAVINGS PROGRAM ACCOUNTS AND RECAPTURE TAX · Axiom

42.15.803 WITHDRAWALS FROM FAMILY EDUCATION SAVINGS PROGRAM ACCOUNTS AND RECAPTURE TAX

(1) Penalties assessed for nonqualified withdrawals are not deductible in arriving at Montana taxable income.

(2) A rollover from one account to another or to an ABLE account is allowed under the same terms described under IRC 529. However, if the funds are rolled over to an account owned by an individual who is not a resident of Montana, then the amount rolled over is a recapturable withdrawal, which is defined in 15-62-208 , MCA.

(3) A recapture tax at a rate equal to the highest rate of tax provided in 15-30-2103 , MCA, is imposed on the recapturable withdrawal of contributions to a family education savings account deducted by the contributor. Except as provided in (10), the recapture tax is payable by the owner of the account from which the withdrawal was made even if the account owner did not make the deductible contribution. The account owner is liable for the tax even if the account owner is not a Montana resident at the time of the withdrawal.

(4) An account owner who is subject to the recapture tax must report the tax on the tax return for the taxable year of the withdrawal and must pay the tax at the time the income tax for such year is due.

(5) The portion of a recapturable withdrawal that is not treated as the withdrawal of earnings shall be treated as:

(a)#

(a) first, out of nondeductible contributions not previously withdrawn; and

(b)#

(b) second, out of deductible contributions not previously withdrawn.

(6) The portion of any other withdrawal that is not treated as the withdrawal of earnings shall be treated as:

(a) first, out of deductible contributions not previously withdrawn; and

(b) second, out of nondeductible contributions not previously withdrawn.

(7) The taxpayer shall have the burden of sustaining a claim that all or a portion of the contributions withdrawn were not attributable to deductible contributions. There shall be a presumption that a recapturable withdrawal is a withdrawal of deductible contributions.

(8) A recapturable withdrawal of amounts that previously reduced Montana taxable income under 15-30-2120

(3)(e), MCA, is Montana source income pursuant to 15-30-2101

(18)(a)(xvi), MCA.

(9) Nonresidents are subject to the recapture tax under ARM 42.15.803 and 42.15.804 .

(10) If the account is established under the Montana Uniform Transfers to Minors Act, and the minor is not yet 21 years of age, the custodian of that account is subject to any recapture tax on a recapturable withdrawal. Authorizing statute(s): 15-30-2620 , 15-62-201 , MCA Implementing statute(s): 15-30-2120 , 15-62-201 , 15-62-208 , MCA History: NEW, 1998 MAR p. 680, Eff. 3/13/98; AMD, 2000 MAR p. 1344, Eff. 5/26/00; AMD, 2004 MAR p. 1031, Eff. 4/23/04; AMD, 2010 MAR p. 1088, Eff. 4/30/10; AMD, 2021 MAR p. 76, Eff. 1/16/21; AMD, 2025 MAR, 42-1088, Eff. 1/25/25.