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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 not
1 4 otherwise deducted, up to two thousand dollars contributed by
1 5 the individual or up to four thousand dollars contributed by
1 6 married persons filing jointly to each higher education
1 7 savings account, as certified pursuant to section 541B.1, in
1 8 the name of the taxpayer or the taxpayer's spouse or
1 9 dependent.
1 10 b. Subtract, to the extent included, earnings on a higher
1 11 education savings account unless the earnings are withdrawn
1 12 during the tax year.
1 13 c. Add, to the extent not otherwise subject to state
1 14 income tax, earnings on a higher education savings account
1 15 which have been withdrawn during the tax year.
1 16 Sec. 2. NEW SECTION. 541B.1 HIGHER EDUCATION SAVINGS
1 17 ACCOUNT.
1 18 1. For purposes of this section, unless the context
1 19 otherwise requires:
1 20 a. "Account holder" means an individual who is the owner
1 21 of a higher education savings account.
1 22 b. "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 higher education savings
1 25 accounts.
1 26 c. "Internal Revenue Code" means the same as defined in
1 27 section 422.3.
1 28 d. "Qualified higher education expenses" means the
1 29 tuition, fees, books, supplies, and equipment required for
1 30 enrollment or attendance of an account holder at an accredited
1 31 private institution as defined in section 261.9; a community
1 32 college as defined in section 260C.2; or an institution
1 33 governed by the state board of regents as defined in section
1 34 262.7, subsection 1, 2, or 3.
1 35 2. A financial instrument known as a higher education
2 1 savings account may be offered by a financial institution. A
2 2 higher education savings account shall have all of the
2 3 following characteristics:
2 4 a. The account is kept in the name of a single individual
2 5 account holder.
2 6 b. Contributions to the account shall only be made by the
2 7 account holder and the spouse and parents of the account
2 8 holder. Total contributions to an account in a calendar year
2 9 shall not exceed four thousand dollars. Interest and earnings
2 10 from moneys in the account and any transfers from another
2 11 higher education savings account are not subject to the
2 12 limitations in this paragraph. Contributions or transfers
2 13 shall not be made to an account in the calendar year in which
2 14 the account holder reaches the age of thirty and one-half
2 15 years old.
2 16 c. The account earns income.
2 17 d. Contributions shall only be made in cash.
2 18 e. The investment of contributions to and earnings of the
2 19 account shall be directed by the financial institution and not
2 20 by any contributor or the account holder.
2 21 f. The account or any portion of the account shall not be
2 22 used as security for a loan.
2 23 g. The account holder shall not make withdrawals from the
2 24 account prior to the account holder's graduation from high
2 25 school or to attaining the age of eighteen and one-half years
2 26 old, whichever occurs first. Within six months of reaching
2 27 the age of thirty and one-half years old, the account holder
2 28 shall withdraw all funds in the account.
2 29 h. A civil penalty of ten percent of the amount withdrawn
2 30 is charged for any amounts withdrawn which are not any of the
2 31 following:
2 32 (1) Used for qualified higher education expenses of the
2 33 account holder.
2 34 (2) Made on account of a nonathletic scholarship,
2 35 allowance, or payment. This subparagraph applies only to the
3 1 extent that the amount of withdrawal does not exceed the
3 2 amount of the nonathletic scholarship, allowance, or payment.
3 3 (3) Made on account of the death or disability of the
3 4 account holder.
3 5 (4) Made because of the age limitation in paragraph "g".
3 6 (5) Transferred to another higher education savings
3 7 account within six months of the withdrawal.
3 8 i. Withdrawals shall be considered taken from
3 9 contributions first and then from transfers from another
3 10 account and finally from earnings on the account.
3 11 3. An individual may be an account holder of only one
3 12 higher education savings account.
3 13 4. The superintendent of banking shall certify a financial
3 14 instrument having the characteristics as specified in
3 15 subsection 2 as a higher education savings account.
3 16 5. The director of revenue and finance in cooperation with
3 17 the superintendent of banking shall adopt rules to administer
3 18 this chapter.
3 19 Sec. 3. This Act, being deemed of immediate importance,
3 20 takes effect upon enactment and applies retroactively to
3 21 January 1, 1997, for tax years beginning on or after January
3 22 1, 1997.
3 23 EXPLANATION
3 24 The bill establishes financial instruments known as higher
3 25 education savings accounts. These accounts may be offered by
3 26 a bank, savings and loan, trust company, or other financial
3 27 entity approved by the superintendent of banking. The purpose
3 28 of this account is to assist the owner of the account, known
3 29 as the account holder, in funding the cost of attending a
3 30 college or university within the state.
3 31 A higher education savings account has certain required
3 32 characteristics which include being in the name of a single
3 33 individual; limiting contributions to the account to the
3 34 account holder and the spouse and parents of the account
3 35 holder; the account earns income; contributions are made in
4 1 cash; the financial institution directs the investments of the
4 2 account; the moneys in the account may not be used as security
4 3 for a loan; contributions to the account may not exceed $4,000
4 4 in a calendar year; withdrawals by the account holder may only
4 5 be made between high school graduation or 18 and one-half
4 6 years old, whichever occurs first and 30 and one-half years
4 7 old when all moneys in the account are to be withdrawn; a 10
4 8 percent civil penalty for withdrawals not used for higher
4 9 education expenses with a few exceptions.
4 10 The bill provides for an annual $2,000 deduction for single
4 11 filers and $4,000 for married joint filers for contributions
4 12 to each higher education savings account in the name of the
4 13 taxpayer or the taxpayer's spouse or dependents. Earnings on
4 14 the accounts are not taxable until withdrawn.
4 15 The bill takes effect upon enactment and applies
4 16 retroactively to January 1, 1997, for tax years beginning on
4 17 or after that date.
4 18 LSB 1631XS 77
4 19 mg/jj/8.1
Text: SF00269 Text: SF00271 Text: SF00200 - SF00299 Text: SF Index Bills and Amendments: General Index Bill History: General Index
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