Print Friendly HOUSE BILL NO. 447 – College savings acct, income tax
HOUSE BILL NO. 447
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H0447........................................................by MR. SPEAKER
Requested by: State Board of Education
POSTSECONDARY EDUCATIONAL SAVINGS ACCOUNT - Adds to existing law to
authorize a state income tax deduction for contributions to a postsecondary
educational savings account, to define those eligible to receive payments
from the account and to provide penalties for withdrawal from the account
for purposes other than postsecondary educational expenses.
01/12 House intro - 1st rdg - to printing
01/12 Rpt prt - to Educ
|||| LEGISLATURE OF THE STATE OF IDAHO ||||
Fifty-fourth Legislature Second Regular Session - 1998
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 447
BY MR. SPEAKER
Requested by: State Board of Education
1 AN ACT
2 RELATING TO INCOME TAX DEDUCTION FOR CERTAIN EDUCATIONAL CONTRIBUTIONS; AMEND-
3 ING CHAPTER 30, TITLE 63, IDAHO CODE, BY THE ADDITION OF A NEW SECTION
4 63-3022M, IDAHO CODE, TO AUTHORIZE A STATE INCOME TAX DEDUCTION FOR CON-
5 TRIBUTIONS TO A POSTSECONDARY EDUCATIONAL SAVINGS ACCOUNT, TO SPECIFY PUR-
6 POSES OF THE ACCOUNT, TO DEFINE TERMS AND TO PROVIDE PENALTIES FOR WITH-
7 DRAWAL OF FUNDS FOR OTHER PURPOSES.
8 Be It Enacted by the Legislature of the State of Idaho:
9 SECTION 1. That Chapter 30, Title 63, Idaho Code, be, and the same is
10 hereby amended by the addition thereto of a NEW SECTION , to be
11 known and designated as Section 63-3022M, Idaho Code, and to read as follows:
12 63-3022M. POSTSECONDARY EDUCATIONAL SAVINGS ACCOUNT. (1) For taxable
13 years commencing on and after January 1, 1999, annual contributions to a post-
14 secondary educational savings account not exceeding five thousand dollars
15 ($5,000) for the account holder and interest earned on a postsecondary educa-
16 tional savings account shall be deducted from taxable income by the account
17 holder, if such amount has not been previously deducted or excluded in arriv-
18 ing at taxable income. For married individuals the maximum deduction shall be
19 computed separately for each individual.
20 (2) For the purpose of this section, the following terms have the follow-
21 ing meanings unless the context clearly denotes otherwise:
22 (a) "Account holder" means an individual, in the case of married individ-
23 uals each spouse, including a self-employed person, who has established a
24 postsecondary educational savings account from which qualifying expendi-
25 tures are made.
26 (b) "Dependent" means a person for whom a deduction is permitted under
27 section 151(b) or (c) of the Internal Revenue Code if a deduction for the
28 person is claimed for that person on the account holder's Idaho income tax
30 (c) "Depository" means a state or national bank, savings and loan associ-
31 ation, credit union or trust company authorized to act as a fiduciary or
32 an insurance administrator or insurance company authorized to do business
33 in this state, a broker or investment advisor regulated by the department
34 of finance, a broker or insurance agent regulated by the department of
35 insurance or a health maintenance organization, fraternal benefit society,
36 hospital and professional service corporation as defined in section
37 41-3403, Idaho Code, or nonprofit mutual insurer regulated under title 41,
38 Idaho Code.
39 (d) "Eligible postsecondary educational expense" means tuition, fees,
40 books, required equipment, room and board paid by the account holder for
41 postsecondary education at any institution of postsecondary education for
1 a relative of the account holder.
2 (e) "Postsecondary educational savings account" means an account estab-
3 lished with a depository to pay the eligible postsecondary educational
4 expenses of the account holder or eligible family member of the account
5 holder. Postsecondary educational savings accounts shall carry the name of
6 the account holder, a designated beneficiary or beneficiaries of the
7 account holder and shall be designated by the depository as a
8 "postsecondary educational savings account."
9 (f) "Relative" means a spouse, child, grandchild or sibling of an
10 account holder.
11 (3) Funds held in a postsecondary educational savings account may be
12 withdrawn by the account holder at any time. Withdrawals for the purpose of
13 paying eligible postsecondary educational expenses shall not be subject to the
14 tax imposed in this chapter. The burden of proving that a withdrawal from a
15 postsecondary educational savings account was made for an eligible post-
16 secondary educational expense is upon the account holder and not upon the
17 depository. Other withdrawals shall be subject to the following restrictions
18 and penalties:
19 (a) There shall be a distribution penalty for withdrawal of funds by the
20 account holder for purposes other than the payment of eligible post-
21 secondary educational expenses. The penalty shall be ten percent (10%) of
22 the amount of withdrawal from the account and, in addition, the amount
23 withdrawn shall be subject to the tax imposed in this chapter. The direct
24 transfer of funds from a postsecondary educational savings account to a
25 postsecondary educational savings account at a different depository shall
26 not be considered a withdrawal for purposes of this section. Charges
27 relating to the administration and maintenance of the account by the
28 depository are not withdrawals for purposes of this section.
29 (b) Upon the death of an account holder, the account principal, as well
30 as any interest accumulated thereon, shall be distributed without penalty
31 to the designated beneficiary or beneficiaries.
32 (c) Funds withdrawn which are later reimbursed shall be taxable unless
33 redeposited into the account within sixty (60) days of the reimbursement.
34 Deposits of reimbursed eligible postsecondary educational expenses shall
35 not be included in calculating the amount deductible.
36 (d) Funds deposited in a postsecondary educational savings account which
37 are deposited in error or unintentionally and which are withdrawn within
38 thirty (30) days of being deposited shall be treated as if the amounts had
39 not been deposited in the postsecondary educational savings account.
40 (e) Funds withdrawn which are, not later than the sixtieth day after the
41 day of the withdrawal, deposited into another postsecondary educational
42 savings account for the benefit of the same account holder are not a with-
43 drawal for purposes of this section and shall not be included in calculat-
44 ing the amount deductible.
45 (4) Reporting -- Depositories shall provide to the state tax commission
46 the following information regarding postsecondary educational savings
47 accounts: the name of the account holder, the address of the account holder,
48 the taxpayer identification number of the account holder, deposits made during
49 the tax year by the account holder, withdrawals made during the tax year by
50 the account holder, interest earned on the proceeds of a postsecondary educa-
51 tional savings account or other information deemed necessary by the commis-
52 sion. Reports shall be filed annually on or before the last day of February
53 following the year to which the information in the report relates.
STATEMENT OF PURPOSE
College costs are rising faster than the general rate of inflation. The debt incurred by
college students is also increasing and the average college student in Idaho now
graduates with more than $15,000 of debt. This legislative proposal is based on the
concept that it is better to encourage our citizens to prepare in advance for the cost of
college for themselves or a member of their family than it is to incur debt to cover those
The financial impact of this legislation is limited to tax revenue that would be lost from those
citizens who use college savings accounts. The legislation proposed is based on the same
model as the medical savings account legislation already in statute. The proposal allows
up to a $5,000 adjustment to gross income each year for deposits to and interest earned in
the account. Assuming the average annual deposit to a college savings account was
$2,000 and the account holder was in a marginal state income tax bracket of 8%, the
annual tax revenue lost per account holder would be approximately $160. Nearly 18% of
Idaho high school seniors graduate from college or about 3,750 students per year. If 25%
of these students were supported with college savings accounts, total loss of tax revenue to
the state each year would be approximately $160 x 938 = $150,080. Tax revenue lost from
interest earned annually in the account is also a factor but difficult to project.
Name: Mike Killworth
Agency: Idaho State Board of Education
Statement of Purpose/Fiscal Impact