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Missouri adopts 12-month holding period for 529 plan contributions

(July 20, 2006) - Missouri's Governor signed SB 641 on July 12, 2006 which establishes a 12-month holding period for contributions made to a Missouri 529 plan.

It appears that Missouri taxpayers must report a distribution made within 12 months of a contribution as Missouri income, if the contribution was claimed as a deduction from Missouri income.

It also appears that a non-qualified distribution to a Missouri or non-Missouri participant within 12 months of the contribution will be subject to a 10% program-imposed penalty. The bill wording suggests the penalty is imposed on principal and earnings, although another section of Missouri law describing the penalty indicates the penalty is on earnings only. The penalty does not apply to distributions used to pay qualifying college costs, distributions when the beneficiary has died, become disabled, or received a scholarship, or to rollover distributions.

The effective date of the new law is unclear, but may be retroactive to January 1, 2006.

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