Text: HF02363 Text: HF02365 Text: HF02300 - HF02399 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
1 1 Section 1. NEW SECTION. 260G.1 EDUCATION INVESTMENT
1 2 ACCOUNT.
1 3 1. A financial instrument known as an education investment
1 4 account is established. An education investment account shall
1 5 have all of the following characteristics:
1 6 a. The account is established in the name of an
1 7 individual, the individual's spouse, or the individual's
1 8 dependent.
1 9 b. Deposits of up to two thousand dollars for an
1 10 individual, or four thousand dollars for an individual and the
1 11 individual's spouse or dependent, can be made to an education
1 12 investment account in the year.
1 13 c. The account earns income or interest.
1 14 d. In the case of death of an individual with an education
1 15 investment account, the balance can be transferred to the
1 16 account of the spouse or a dependent or an account can be
1 17 established for the spouse or a dependent. The balance of an
1 18 individual's education investment account transferring to the
1 19 spouse or a dependent at the time of death is not subject to
1 20 the state inheritance tax.
1 21 e. An education investment account may be used for the
1 22 following purposes:
1 23 (1) To receive deposits of pretax income to provide a
1 24 savings vehicle for future postsecondary education expenses.
1 25 (2) To accrue interest income on a tax-exempt or tax-
1 26 deferred basis to the extent otherwise permitted by state and
1 27 federal income tax law.
1 28 (3) To apply accumulated deposits and the interest income
1 29 generated therefrom to the payment of postsecondary education
1 30 tuition and textbooks, computers, and software related.
1 31 f. Payments from an education investment account are
1 32 restricted as follows:
1 33 (1) Amounts withdrawn prior to a dependent subject to a
1 34 premature withdrawal civil penalty of ten percent.
1 35 (2) Amounts accumulated must be withdrawn or otherwise
2 1 expended for tuition and textbook, computer, and software
2 2 related expenses by the dependent's age twenty-five.
2 3 (3) Amounts accumulated and withdrawn after the
2 4 dependent's age eighteen and prior to the mandatory age
2 5 twenty-five withdrawal shall be subject to a ten percent civil
2 6 penalty if expended for a purpose unrelated to tuition and
2 7 textbook, computer, and software related expenses.
2 8 (4) Amounts will be taxable when withdrawn. Withdrawals
2 9 can either be taken in a lump-sum or in installments and will
2 10 be taxed as ordinary income when received.
2 11 2. Eligible financial institutions for the establishment
2 12 and administration of an education investment account shall be
2 13 determined by the department of education, in cooperation with
2 14 the banking division of the department of commerce as
2 15 established in section 546.3.
2 16 A financial institution holding an education investment
2 17 account shall make an annual report to the department of
2 18 revenue and finance on contributions and withdrawals to the
2 19 account in the year pursuant to rules of the department of
2 20 revenue and finance.
2 21 Sec. 2. Section 422.7, Code Supplement 1995, is amended by
2 22 adding the following new subsections:
2 23 NEW SUBSECTION. 35. a. Subtract up to two thousand
2 24 dollars contributed by the individual to an education
2 25 investment account. The deduction for contributions to an
2 26 education investment account is allowed if the taxpayer's net
2 27 income is forty thousand dollars or less in the case of a
2 28 married individual, an unmarried head of household, or a
2 29 surviving spouse, or the taxpayer's net income is thirty
2 30 thousand dollars or less in the case of all other persons. In
2 31 the case of a married individual, the combined net income of
2 32 both spouses shall be considered.
2 33 b. Subtract to the extent included, interest earned in the
2 34 tax year on an education investment account unless the
2 35 interest is withdrawn and not used for an approved purpose
3 1 described in section 260G.1, subsection 1, paragraph "e".
3 2 c. Add to the extend not included, amounts withdrawn from
3 3 an education investment account which were not used for any of
3 4 the approved purposes described in section 260G.1, subsection
3 5 1, paragraph "e", and which represent tax benefits previously
3 6 taken by the individual.
3 7 Sec. 3. This Act takes effect January 1, 1997, for tax
3 8 years beginning on or after that date.
3 9 EXPLANATION
3 10 This bill creates an education investment account to
3 11 provide a tax-advantaged savings vehicle for dependent child
3 12 postsecondary education expenses. Deposits per adult
3 13 individual of up to $2,000 annually can be made on a pretax
3 14 basis, with interest income accumulating tax-deferred. Civil
3 15 withdrawal penalties are provided for premature withdrawals,
3 16 or for withdrawals between the dependent's age 18 through 25
3 17 for uses other than the prescribed use of tuition and
3 18 textbook, computer, and software related expenses.
3 19 The bill is effective January 1, 1997, for tax years
3 20 beginning on or after that date.
3 21 LSB 3992YH 76
3 22 rn/cf/24
Text: HF02363 Text: HF02365 Text: HF02300 - HF02399 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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