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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED #2
Arizona's
education savings plan; revisions (NOW: revisions; Arizona's education savings plan)
(NOW: treasurer; investments; education savings plan)
Purpose
Expands the definitions of qualified higher education expenses and qualified withdrawal to conform to the U.S. Internal Revenue Code for purposes of the AZ529, Arizona's Education Savings Plan (AZ529 Plan). Allows AZ529 Plan account monies to be transferred or rolled over to an Achieving a Better Life Experience account or Roth Individual Retirement Account, if certain requirements are met.
Background
Arizona's 529 plan was established by Laws 1997, Chapter 171 as the Family College Savings Program and was renamed by Laws 2021, Chapter 188 as AZ529, Arizona's Education Savings Plan (AZ529 Plan). The State Treasurer manages the AZ529 Plan which offers tax advantaged investment products to save for educational expenses. The AZ529 Plan is operated through trust fund accounts established by account owners and payments are made by account owners pursuant to tuition savings agreements. Accounts may be opened by any person who would like to invest and save to pay qualified higher education expenses (A.R.S. § 15-1875).
In July 2025, the U.S. Congress passed H.R. 1 which modified the authorized uses and limits for 529 education savings plan monies. Specifically, H.R. 1: 1) increased the limit on, and expanded the definition of, qualified expenses to enroll in or attend an elementary or secondary public, private or religious school; 2) expanded the definition of qualified higher education expenses to include certain postsecondary credentialing expenses; 3) made the authority to rollover amounts from a 529 account to an Achieving a Better Life Experience Act account (ABLE account) permanent; and 4) allowed rollovers from a 529 account to a Roth Individual Retirement Account (Roth IRA). Laws 2019, Chapter 251 allowed up to $15,000 of an AZ529 Plan account to roll over to an ABLE account on direction of an account owner through December 31, 2025.
Federal law defines qualified higher education expenses to
include: 1) tuition;
2) curriculum and curricular materials; 3) books or other instructional
materials; 4) online education materials; 5) tuition for tutoring or
educational classes outside the home; 6) fees for standardized testing, advanced
placement examination or any examinations related to college or university
admission; 7) fees for dual enrollment in an institution of higher education;
8) educational therapies for students with disabilities provided by a licensed
or accredited practitioner or provider; and 9) qualified postsecondary
credentialing expenses (26
U.S.C. 529). A qualified withdrawal is an account withdrawal for the
designated beneficiary's qualified higher education expenses, or tuition or
education loans of up to $10,000 (A.R.S.
§ 15-1871).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Modifies the definition of qualified withdrawal in include a withdrawal from an account to pay qualified higher education expenses of the account's designated beneficiary in an amount up to $20,000 in the aggregate for expenses incurred for the designated beneficiary, rather than up to $10,000 in tuition.
2. Redefines member of the family and qualified higher education expenses to have the same meaning prescribed in the U.S. Internal Revenue Code.
3. Allows, on direction of an AZ529 Plan account owner, all or a portion of an account to be transferred to a Roth IRA if:
a) the AZ529 Plan account is maintained by the designated beneficiary for at least 15 years before the transfer date;
b) the transferred monies are derived from contributions that were made to the AZ529 Plan account at least five years before the transfer date and from the earnings attributable to those contributions;
c) the AZ529 Plan account's designated beneficiary is the designated beneficiary of the Roth IRA to which the transfer is made;
d) the total amount transferred and all other contributions to the Roth IRA for the designated beneficiary in any year do not exceed the annual Roth IRA contribution limit for the beneficiary; and
e) the aggregate amount transferred from any AZ529 Plan account to all Roth IRAs for the designated beneficiary does not exceed $35,000.
4. Allows all or a portion of an AZ529 Plan account to be transferred to an ABLE account if the AZ529 Plan account's designated beneficiary is either the designated beneficiary or a member of the family of the designated beneficiary of the transferee account.
5. Removes the requirement for the AZ529 application to include the name, address and social security number or employer identification number of the contributor.
6. Makes technical and conforming changes.
7. Becomes effective on the general effective date.
Amendments Adopted by Additional Committee of the Whole
1. Requires the State Treasurer to only invest in safe investments that prioritize safety and principal preservation before high returns, liquidity and yield.
2. Prohibits the State Treasurer from:
a) using any insider information obtained while performing official duties to knowingly benefit another party or for any personal gain or for the personal gain of any family member of the State Treasurer; and
b) investing in speculative investments.
3. Specifies that the interests of the State Treasurer's office must take precedence over any personal interests of the State Treasurer.
4. Requires the State Treasurer to establish and oversee an investment advisory team and prescribes investment advisory team membership.
5. Requires the investment advisory team to meet as necessary to review and make appropriate recommendations to the State Board of Investment pertaining to investment performance and strategies and prioritizing safety and principal preservation before liquidity and yield.
6. Adds, to the statutory restrictions on the State Treasurer's investment of public monies, a prohibition against investments in real estate using permanent land funds or any fund administered by the State Treasurer.
7. Requires the State Treasurer to manage the Local Government Investment Pool by using only employees of the State Treasurer’s Office and allows the State Treasurer to confer with the State Board of Investment as necessary.
8. Allows the State Treasurer to enter into a contract with a third party as a contingency if the State Treasurer is unable to conduct their fiduciary duty only for the time period that the State Treasurer's Office is unable to conduct such fiduciary duty.
9. Defines terms.
10. Makes technical changes.
Amendments Adopted by Additional Committee of the Whole
1. Removes the requirements for the State Treasurer to only invest in safe investments that prioritize safety and principal preservation before high returns, liquidity and yield.
2. Removes the prohibition against the State Treasurer:
c) using any insider information obtained while performing official duties to knowingly benefit another party or for any personal gain or for the personal gain of any family member of the State Treasurer; and
d) investing in speculative investments.
3. Removes the specification that the interests of the State Treasurer's Office must take precedence over any personal interests of the State Treasurer.
4. Removes the requirement for the State Treasurer to establish and oversee an investment advisory team and removes the prescribed investment advisory team membership and requirements.
5. Removes the addition to the statutory restrictions on the State Treasurer's investment of public monies.
6. Removes the requirements for the State Treasurer to manage the Local Government Investment Pool by using only employees of the State Treasurer’s Office and allows the State Treasurer to confer with the State Board of Investment as necessary.
7. Removes the authority for the State Treasurer to enter into a contract with a third party as a contingency if the State Treasurer is unable to conduct their fiduciary duty only for the time period that the State Treasurer's Office is unable to conduct such fiduciary duty.
8. Removes defined terms.
House Action Senate Action
WM 2/4/26 DP 5-3-1-0 FIN 3/16/26 DP 5-2-0
3rd Read 2/25/26 31-21-8
Prepared by Senate Research
June 11, 2026
MG/hk