Print Friendly HOUSE BILL NO. 464 – College Savings Prog, withdrawals
HOUSE BILL NO. 464
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H0464...............................................by REVENUE AND TAXATION
COLLEGE SAVINGS PROGRAM - Amends existing law relating to the Idaho College
Savings Program to expand the definition of "family member" to include
first cousins; to revise the definitions of "nonqualified withdrawal" and
"qualified higher education expenses" to comply with federal law; and to
eliminate the penalty to be assessed against nonqualified withdrawals.
01/21 House intro - 1st rdg - to printing
01/22 Rpt prt - to Rev/Tax
01/29 Rpt out - rec d/p - to 2nd rdg
01/30 2nd rdg - to 3rd rdg
01/31 3rd rdg - PASSED - 68-0-2
AYES -- Aikele, Barraclough, Barrett, Bedke, Bell, Bieter, Black,
Block, Boe, Bolz, Bradford, Bruneel, Callister, Campbell, Clark,
Collins, Crow, Cuddy, Deal, Denney, Ellis, Ellsworth, Eskridge,
Field(13), Field(20), Gagner, Gould, Hadley, Hammond, Harwood,
Henbest, Higgins, Hornbeck, Jaquet, Jones, Kellogg, Kendell, Kunz,
Lake, Langford, Loertscher, Mader, Martinez, McKague, Meyer,
Montgomery, Mortensen, Moyle, Pearce, Pischner, Pomeroy, Raybould,
Ridinger, Roberts, Robison, Sali, Schaefer, Sellman, Shepherd,
Smith(33), Smith(23), Smylie, Stevenson, Stone, Tilman, Trail, Wood,
NAYS -- None
Absent and excused -- Wheeler, Young
Floor Sponsor - Ridinger
Title apvd - to Senate
02/01 Senate intro - 1st rdg - to Loc Gov
02/12 Rpt out - rec d/p - to 2nd rdg
02/13 2nd rdg - to 3rd rdg
02/18 3rd rdg - PASSED - 33-0-2
AYES -- Andreason, Boatright, Branch(Bartlett), Brandt, Bunderson,
Burtenshaw, Cameron, Darrington, Davis, Deide, Frasure, Geddes,
Goedde, Hawkins, Hill, Ingram, Ipsen, Keough, King-Barrutia, Little,
Lodge, Marley, Noh, Richardson, Risch, Schroeder, Sims, Sorensen,
Stegner, Stennett, Thorne, Wheeler, Williams
NAYS -- None
Absent and excused -- Dunklin, Sandy
Floor Sponsor - Ipsen
Title apvd - to House
02/19 To enrol
02/20 Rpt enrol - Sp signed
02/21 Pres signed
02/22 To Governor
02/27 Governor signed
Session Law Chapter 50
|||| LEGISLATURE OF THE STATE OF IDAHO ||||
Fifty-sixth Legislature Second Regular Session - 2002
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 464
BY REVENUE AND TAXATION COMMITTEE
1 AN ACT
2 RELATING TO THE IDAHO COLLEGE SAVINGS PROGRAM; AMENDING SECTION 33-5401, IDAHO
3 CODE, TO EXPAND THE DEFINITION OF "FAMILY MEMBER" TO INCLUDE FIRST COUSINS
4 AND TO REVISE THE DEFINITIONS OF "NONQUALIFIED WITHDRAWAL" AND "QUALIFIED
5 HIGHER EDUCATION EXPENSES" TO COMPLY WITH FEDERAL LAW; AMENDING SECTION
6 33-5404, IDAHO CODE, TO ELIMINATE THE PENALTY TO BE ASSESSED AGAINST
7 NONQUALIFIED WITHDRAWALS AND TO MAKE TECHNICAL CORRECTIONS; DECLARING AN
8 EMERGENCY AND PROVIDING RETROACTIVE APPLICATION.
9 Be It Enacted by the Legislature of the State of Idaho:
10 SECTION 1. That Section 33-5401, Idaho Code, be, and the same is hereby
11 amended to read as follows:
12 33-5401. DEFINITIONS. As used in this chapter, the following terms have
13 the following meanings unless the context clearly denotes otherwise:
14 (1) "Account" means an individual trust account or savings account estab-
15 lished as prescribed in this chapter.
16 (2) "Account owner" means the person designated at the time an account is
17 opened as having the right to withdraw moneys from the account before the
18 account is disbursed to or for the benefit of the designated beneficiary.
19 (3) "Board" means the state college savings program board created in sec-
20 tion 33-5402, Idaho Code.
21 (4) "Designated beneficiary," except as provided in section 33-5404,
22 Idaho Code, means, with respect to an account, the person designated at the
23 time the account is opened as the person whose higher education expenses are
24 expected to be paid from the account or, if this designated beneficiary is
25 replaced in accordance with section 33-5404, Idaho Code, the replacement bene-
27 (5) "Financial institution" means any state bank, national bank, savings
28 bank, savings and loan association, credit union, insurance company, brokerage
29 firm or other similar entity that is authorized to do business in this state.
30 (6) "Higher education institution" means any of the following:
31 (a) An institution described in the higher education act of 1965 (P.L.
32 89-329; 79 Stat. 1219; 20 U.S.C. sections 1001 et seq.);
33 (b) An area vocational educational school as defined in 20 U.S.C. section
35 (c) An institution regulated by the state board of education.
36 (7) "Member of the family" means any of the following:
37 (a) A son or daughter of a person or a descendant of the son or daughter
38 of the person;
39 (b) A stepson or stepdaughter of a person;
40 (c) A brother, sister, stepbrother or stepsister of a person. For pur-
41 poses of this paragraph, "brother" and "sister" include a brother or sis-
42 ter by the half-blood;
43 (d) The father or mother of a person or the ancestor of the father or
1 mother of a person;
2 (e) A stepfather or stepmother of a person;
3 (f) A son or daughter of a person's brother or sister. For purposes of
4 this paragraph, "brother" and "sister" include a brother or sister by the
6 (g) A brother or sister of the person's father or mother. For purposes of
7 this paragraph, "brother" and "sister" include a brother or sister by the
9 (h) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-
10 in-law or sister-in-law of a person;
11 (i) The spouse of a person or the spouse of any individual described in
12 this paragraph;
13 (j) The first cousin of a person;
14 (k) Any individual who meets the criteria for family membership described
15 in this subsection as a result of legal adoption.
16 (8) "Nonqualified withdrawal" means an account withdrawal from an account
17 other than that is not one (1) of the following:
18 (a) A qualified withdrawal;
19 (b) A withdrawal made as the result of the death or disability of the
20 designated beneficiary of an account;
21 (c) A withdrawal that is made on the account of a scholarship , or the
22 allowance or payment described in section 135(d)(1)(B) or (C) of the
23 Internal Revenue Code, and that is received by the designated beneficiary,
24 but only to the extent of the amount of this scholarship, allowance or
25 payment as defined in 26 U.S.C. section 117 or an educational allowance as
26 defined in 26 U.S.C. section 25A(g)(2);
27 (d) A rollover or change of the designated beneficiary.
28 (9) "Program" means the college savings program established under this
30 (10) "Qualified higher education expenses" means tuition, fees, books,
31 supplies, room and board, and equipment required for enrollment or attendance
32 of a designated beneficiary at a higher education institution shall have the
33 meaning provided in 26 U.S.C. section 529(e)(3).
34 (11) "Qualified withdrawal" means a withdrawal from an account to pay the
35 qualified higher education expenses of the designated beneficiary of the
36 account, but only if the withdrawal is made in accordance with this chapter.
37 SECTION 2. That Section 33-5404, Idaho Code, be, and the same is hereby
38 amended to read as follows:
39 33-5404. PROGRAM REQUIREMENTS. (1) The program shall be operated through
40 the use of accounts. An account may be opened by any person who desires to
41 save to pay the qualified higher education expenses of a person by satisfying
42 each of the following requirements:
43 (a) Completing an application in the form prescribed by the board. The
44 application shall include the following information:
45 (i) The name, address and social security number or employer iden-
46 tification number of the contributor;
47 (ii) The name, address and social security number of the account
48 owner if the account owner is not the contributor;
49 (iii) The name, address and social security number of the designated
51 (iv) The certification relating to no excess contributions required
52 by subsection (1 73) of this section;
53 (v) Any other information that the board may require;
1 (b) Paying the one-time application fee established by the board;
2 (c) Making the minimum contribution required by the board or by opening
3 an account;
4 (d) Designating the type of account to be opened if more than one (1)
5 type of account is offered.
6 (2) Any person may make contributions to an account after the account is
8 (3) Contributions to accounts may be made only in cash.
9 (4) Account owners may withdraw all or part of the balance from an
10 account on sixty (60) days' notice, or a shorter period as may be authorized
11 by the board, under rules prescribed by the board. These rules shall include
12 provisions that will generally enable the board or program manager to deter-
13 mine if a withdrawal is a nonqualified withdrawal or a qualified withdrawal.
14 The rules may, but need not, require one (1) or more of the following:
15 (a) Account owners seeking to make a qualified withdrawal or other with-
16 drawal that is not a nonqualified withdrawal shall provide certifications,
17 copies of bills for qualified higher education expenses or other support-
18 ing material;
19 (b) Qualified withdrawals from an account shall be made only by a check
20 payable as designated by the account owner ;
21 (c) Withdrawals not meeting certain requirements shall be treated as
22 nonqualified withdrawals by the program manager, and if these withdrawals
23 are not nonqualified withdrawals, the account owner must seek refunds of
24 penalties directly from the board.
25 (5) An account owner may change the designated beneficiary of an account
26 to an individual who is a member of the family of the former designated bene-
27 ficiary in accordance with procedures established by the board.
28 (6) On the direction of an account owner, all or a portion of an account
29 may be transferred to another account of which the designated beneficiary is a
30 member of the family of the designated beneficiary of the transferee account.
31 (7) Changes in designated beneficiaries and rollovers under this section
32 are not permitted if the changes or rollovers would violate either of the fol-
33 lowing provisions of this section relating to excess contributions or to
34 investment choice.
35 (8) In the case of any nonqualified withdrawal from an account, an amount
36 equal to ten percent (10%) of the portion of the proposed withdrawal that
37 would constitute income as determined in accordance with section 529 of the
38 Internal Revenue Code shall be withheld as a penalty and paid to the board for
39 use in operating and marketing the program and for state student financial
41 (9) The board, by rule, shall increase the percentage of the penalty pre-
42 scribed in subsection (8) of this section or change the basis of this penalty
43 if the board determines that the amount of the penalty must be increased to
44 constitute a penalty that is more than a de minimis penalty for purposes of
45 qualifying the program as a qualified state tuition program under section 529
46 of the Internal Revenue Code.
47 (10) The board may decrease the percentage of the penalty prescribed in
48 subsection (8) of this section if it determines that both of the following
49 conditions exist:
50 (a) The penalty is greater than is required to constitute a penalty that
51 is more than a de minimis penalty for purposes of qualifying the program
52 as a qualified state tuition program under section 529 of the Internal
53 Revenue Code;
54 (b) The penalty, when combined with other revenue generated under this
55 chapter, is producing more revenue than is required to cover the costs of
1 operating and marketing the program and to recover any costs not previ-
2 ously recovered.
3 (11) If an account owner makes a nonqualified withdrawal and no penalty
4 amount is withheld pursuant to subsection (8) of this section or the amount
5 withheld is less than the amount required to be withheld under that subsection
6 for nonqualified withdrawals, the account owner shall pay the unpaid portion
7 of the penalty to the state tax commission on or before April 15 of the fol-
8 lowing tax year.
9 (12) Each account shall be maintained separately from each other account
10 under the program.
11 ( 139) Separate records and accounting shall be maintained for each account
12 for each designated beneficiary.
13 (1 40) No contributor to, account owner of or designated beneficiary of any
14 account may direct the investment of any contributions to an account or the
15 earnings from the account.
16 (1 51) If the board terminates the authority of a financial institution to
17 hold accounts and accounts must be moved from that financial institution to
18 another financial institution, the board shall select the financial institu-
19 tion and type of investment to which the balance of the account is moved
20 unless the internal revenue service provides guidance stating that allowing
21 the account owner to select among several financial institutions that are cur-
22 rent contractors would not cause a plan to cease to be a qualified state
23 tuition plan program.
24 (1 62) Neither an account owner nor a designated beneficiary may use an
25 interest in an account as security for a loan. Any pledge of an interest in an
26 account is of no force and effect.
27 (1 73) The board shall adopt rules to prevent contributions on behalf of a
28 designated beneficiary in excess of those necessary to pay the qualified
29 higher education expenses of the designated beneficiaries. The rules shall
30 address the following:
31 (a) Procedures for aggregating the total balances of multiple accounts
32 established for a designated beneficiary;
33 (b) The establishment of a maximum total balance that may be held in
34 accounts for a designated beneficiary;
35 (c) The board shall review the quarterly reports received from partici-
36 pating financial institutions and certify that the balance in all quali-
37 fied state tuition programs, as defined in section 529 of the Internal
38 Revenue Code, of which that person is the designated beneficiary does not
39 exceed the lesser of:
40 (i) A maximum college savings amount established by the board from
41 time to time;
42 (ii) The cost in current dollars of qualified higher education
43 expenses that the contributor reasonably anticipates the designated
44 beneficiary will incur;
45 (d) Requirements that any excess balances with respect to a designated
46 beneficiary be promptly withdrawn in a nonqualified withdrawal or rolled
47 over to another account in accordance with this section.
48 (1 84) If there is any distribution from an account to any person or for
49 the benefit of any person during a calendar year, the distribution shall be
50 reported to the internal revenue service and the account owner or the desig-
51 nated beneficiary to the extent required by federal law.
52 (1 95) The financial institution shall provide statements to each account
53 owner at least once each year within thirty-one (31) days after the twelve
54 (12) month period to which they relate. The statement shall identify the con-
55 tributions made during a preceding twelve (12) month period, the total contri-
1 butions made through the end of the period, the value of the account as of the
2 end of this period, distributions made during this period and any other mat-
3 ters that the board requires be reported to the account owner.
4 ( 2016) Statements and information returns relating to accounts shall be
5 prepared and filed to the extent required by federal or state tax law.
6 ( 217) A state or local government or organization described in section
7 501(c)(3) of the Internal Revenue Code may open and become the account owner
8 of an account to fund scholarships for persons whose identity will be deter-
9 mined after an account is opened.
10 ( 2218) In the case of any account described in subsection ( 217) of this
11 section, the requirement that a designated beneficiary be designated when an
12 account is opened does not apply and each person who receives an interest in
13 the account as a scholarship shall be treated as a designated beneficiary with
14 respect to the interest.
15 ( 2319) Any social security numbers, addresses or telephone numbers of
16 individual account holders and designated beneficiaries that come into the
17 possession of the board are confidential, are not public records and shall not
18 be released by the board.
19 SECTION 3. An emergency existing therefor, which emergency is hereby
20 declared to exist, this act shall be in full force and effect on and after its
21 passage and approval, and retroactively to January 1, 2002.
STATEMENT OF PURPOSE
This bill is necessary to bring the Idaho College Savings Program
in compliance with the Federal Economic Growth and Tax Relief
Reconciliation Act of 2001.
There is no fiscal impact to the State of Idaho.
Name: Ben Ysursa, Bill Ruud,
Idaho College Savings Board
Phone: 334-2852, 334-2100
STATEMENT OF PURPOSE/FISCAL NOTE H 464