Text: HF00619 Text: HF00621 Text: HF00600 - HF00699 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
1 1 Section 1. Section 422.7, Code 1997, is amended by adding
1 2 the following new subsection:
1 3 NEW SUBSECTION. 35. a. Subtract, to the extent included,
1 4 earnings on a prepaid tuition savings account that have not
1 5 been withdrawn during the tax year.
1 6 b. Add, to the extent not otherwise subject to state
1 7 income tax, earnings on a prepaid tuition savings account
1 8 which have been withdrawn during the tax year and not used for
1 9 tuition at an eligible higher education institution, as
1 10 defined in section 541B.1.
1 11 Sec. 2. NEW SECTION. 541B.1 PREPAID TUITION SAVINGS
1 12 ACCOUNT.
1 13 1. For purposes of this section, unless the context
1 14 otherwise requires:
1 15 a. "Account holder" means an individual who is the owner
1 16 of a prepaid tuition savings account.
1 17 b. "Eligible higher education institution" means an
1 18 accredited private institution as defined in section 261.9; a
1 19 community college as defined in section 260C.2; or an
1 20 institution governed by the state board of regents as
1 21 identified in section 262.7, subsection 1, 2, or 3.
1 22 c. "Financial institution" means any bank, savings and
1 23 loan, trust company, or other financial entity approved by the
1 24 superintendent of banking to offer prepaid tuition savings
1 25 accounts.
1 26 d. "Qualified higher education tuition expenses" means the
1 27 tuition, fees, books, supplies, and equipment required for
1 28 enrollment or attendance of an account holder at an eligible
1 29 higher education institution.
1 30 2. A financial instrument known as a prepaid tuition
1 31 savings account may be offered by a financial institution. A
1 32 prepaid tuition savings account shall have all of the
1 33 following characteristics:
1 34 a. The account is kept in the name of a single individual
1 35 account holder.
2 1 b. Contributions to the account shall only be made by the
2 2 account holder and the spouse and parents or guardian of the
2 3 account holder. Total contributions to an account in a
2 4 calendar year are limited to the amount determined under
2 5 subsection 3. Contributions or transfers shall not be made to
2 6 an account in the calendar year in which the account holder
2 7 reaches the age of thirty-four and one-half years old.
2 8 c. The account earns income or interest.
2 9 d. Contributions shall only be made in cash.
2 10 e. The investment of contributions to and earnings of the
2 11 account shall be directed by the financial institution and not
2 12 by any contributor or the account holder.
2 13 f. The account or any portion of the account shall not be
2 14 used as security for a loan.
2 15 g. The account holder shall not make withdrawals from the
2 16 account prior to the account holder's graduation from high
2 17 school or to attaining the age of eighteen and one-half years
2 18 old, whichever occurs first. Within six months of reaching
2 19 the age of thirty-four and one-half years old, the account
2 20 holder shall withdraw all funds in the account.
2 21 h. A civil penalty of ten percent of the amount withdrawn
2 22 is charged for any amounts withdrawn which are not any of the
2 23 following:
2 24 (1) Used for qualified higher education tuition expenses
2 25 of the account holder.
2 26 (2) Made on account of a nonathletic scholarship,
2 27 allowance, or payment. This subparagraph applies only to the
2 28 extent that the amount of withdrawal does not exceed the
2 29 amount of the nonathletic scholarship, allowance, or payment.
2 30 (3) Made on account of the death or disability of the
2 31 account holder.
2 32 (4) Made because of the age limitation in paragraph "g".
2 33 (5) Transferred to another prepaid tuition savings account
2 34 within six months of the withdrawal.
2 35 i. Withdrawals shall be considered taken from
3 1 contributions first and then from transfers from another
3 2 account and finally from earnings on the account.
3 3 3. Before establishing a prepaid tuition savings account,
3 4 the account holder or parent or guardian of the account holder
3 5 shall identify the eligible higher education institution which
3 6 the account holder will seek to attend. The financial
3 7 institution shall estimate the qualified higher education
3 8 tuition expenses and the amount that needs to be contributed
3 9 to the account each year to reach that amount. If
3 10 contributions are less than required in a particular year,
3 11 contributions may be increased in subsequent years to make up
3 12 for the shortfall.
3 13 In any year, a different eligible higher education
3 14 institution may be designated and the financial institution
3 15 shall recompute the yearly contribution amount and make
3 16 adjustments as necessary.
3 17 4. An individual may be an account holder of only one
3 18 prepaid tuition savings account.
3 19 5. The superintendent of banking shall certify a financial
3 20 instrument having the characteristics as specified in
3 21 subsection 2 as a prepaid tuition savings account.
3 22 6. The director of revenue and finance in cooperation with
3 23 the superintendent of banking shall adopt rules to administer
3 24 this chapter.
3 25 7. The identification of the eligible higher education
3 26 institution which the account holder seeks to attend and the
3 27 establishment of a prepaid tuition savings account do not
3 28 entitle or guarantee enrollment or admission at the identified
3 29 eligible higher education institution.
3 30 Sec. 3. This Act, being deemed of immediate importance,
3 31 takes effect upon enactment and applies retroactively to
3 32 January 1, 1997, for tax years beginning on or after January
3 33 1, 1997.
3 34 EXPLANATION
3 35 The bill establishes financial instruments known as prepaid
4 1 tuition savings accounts. These accounts may be offered by a
4 2 bank, savings and loan, trust company, or other financial
4 3 entity approved by the superintendent of banking. The purpose
4 4 of this account is to assist the owner of the account, known
4 5 as the account holder, in funding the cost of attending a
4 6 college or university within the state.
4 7 A prepaid tuition savings account has certain required
4 8 characteristics which include that the account is in the name
4 9 of a single individual; contributions may be made to the
4 10 account only by the account holder and the spouse and parents
4 11 or guardian of the account holder; the account earns income;
4 12 contributions are made in cash; the financial institution
4 13 directs the investments of the account; the moneys in the
4 14 account may not be used as security for a loan; contributions
4 15 to the account may not exceed the estimated amount needed to
4 16 pay the costs of attending a college or university in the
4 17 state in a calendar year; withdrawals by the account holder
4 18 may only be made between high school graduation or 18 and one-
4 19 half years old, whichever occurs first, and 34 and one-half
4 20 years old when all moneys in the account are to be withdrawn;
4 21 a 10 percent civil penalty for withdrawals not used for higher
4 22 education tuition expenses with a few exceptions. Earnings on
4 23 the accounts are not taxable until withdrawn.
4 24 The bill takes effect upon enactment and applies
4 25 retroactively to January 1, 1997, for tax years beginning on
4 26 or after that date.
4 27 LSB 1010YH 77
4 28 mg/jj/8
Text: HF00619 Text: HF00621 Text: HF00600 - HF00699 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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