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H.B. 261

             1     

HIGHER EDUCATION SAVINGS INCENTIVE

             2     
PROGRAM AMENDMENTS

             3     
1999 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Keele Johnson

             6      AN ACT RELATING TO HIGHER EDUCATION; MODIFYING PROVISIONS IN THE
             7      HIGHER EDUCATION SAVINGS AND SUPPLEMENTAL SAVINGS INCENTIVE
             8      PROGRAMS RELATED TO AMOUNTS PARTICIPANTS MAY INVEST IN THE
             9      PROGRAMS; PROVIDING THAT THE STATE BOARD OF REGENTS SHALL ESTABLISH
             10      THOSE AMOUNTS; AND PROVIDING FOR SAVINGS AMOUNTS IN ADDITION TO THE
             11      AMOUNT WHICH QUALIFIES FOR STATE INCOME TAX DEDUCTIBILITY h ; AND
             11a      PROVIDING FOR RETROSPECTIVE OPERATION h .
             12      This act affects sections of Utah Code Annotated 1953 as follows:
             13      AMENDS:
             14          53B-8a-106, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
             15          53B-8b-105, as enacted by Chapter 390, Laws of Utah 1997
             16          59-10-114, as last amended by Chapter 56, Laws of Utah 1997
             17      Be it enacted by the Legislature of the state of Utah:
             18          Section 1. Section 53B-8a-106 is amended to read:
             19           53B-8a-106. Participation agreements for trust.
             20          The trust may enter into participation agreements with participants on behalf of
             21      beneficiaries pursuant to the following terms and agreements:
             22          (1) (a) Each participation agreement shall require a participant to agree to invest a specific
             23      amount of money in the trust for a specific period of time for the benefit of a specific beneficiary,
             24      not to exceed [$1,200 per beneficiary per year, adjusted annually to reflect increases in the
             25      Consumer Price Index] an amount determined by the board.
             26          (b) Participation agreements may be amended to provide for adjusted levels of payments
             27      based upon changed circumstances or changes in educational plans [and may contain penalties for


             28      failure to make payments when scheduled].
             29          (c) A participant may make additional optional payments as long as the total payments for
             30      a specific beneficiary do not exceed the total estimated higher education costs as determined by
             31      the board.
             32          (d) The maximum amount of investments that may be subtracted from federal taxable
             33      income of a resident or nonresident individual under Subsection 59-10-114 (2)(j) shall be $1,200
             34      for each individual beneficiary for the h [ fiscal year beginning July 1,1996, ] h 1996 CALENDAR
             34a      YEAR h and an amount adjusted
             35      annually thereafter to reflect increases in the Consumer Price Index.
             36          (2) The participation agreement may include a minimum rate of return for the investment
             37      made by the participant.
             38          (3) Beneficiaries designated in participation agreements may be designated from date of
             39      birth through age 16.
             40          (4) Payment of benefits provided under participation agreements must begin not later than
             41      the first full fall academic quarter or semester at an institution of higher education following the
             42      22nd birthday or high school graduation of the beneficiary, whichever is later, unless the
             43      participant notifies the program administrator to the contrary.
             44          (5) The execution of a participation agreement by the trust may not guarantee in any way
             45      that higher education costs will be equal to projections and estimates provided by the trust or that
             46      the beneficiary named in any participation agreement will:
             47          (a) be admitted to an institution of higher education;
             48          (b) if admitted, be determined a resident for tuition purposes by the institution of higher
             49      education, unless the participation agreement is vested;
             50          (c) be allowed to continue attendance at the institution of higher education following
             51      admission; or
             52          (d) graduate from the institution of higher education.
             53          (6) Beneficiaries may be changed as permitted by the rules and regulations of the board
             54      upon written request of the participant prior to the date of admission of any beneficiary under a
             55      participation agreement by an institution of higher education so long as the substitute beneficiary
             56      is eligible for participation.
             57          (7) Participation agreements may be freely amended throughout their terms in order to
             58      enable participants to increase or decrease the level of participation, change the designation of


             59      beneficiaries, and carry out similar matters as authorized by rule.
             60          (8) Each participation agreement shall provide that the participation agreement may be
             61      canceled upon the terms and conditions, and upon payment of the fees and costs set forth and
             62      contained in the board's rules and regulations.
             63          Section 2. Section 53B-8b-105 is amended to read:
             64           53B-8b-105. Participation agreements -- Content.
             65          (1) Each participation agreement shall provide for the payment of qualified higher
             66      education expenses of the eligible beneficiary of the participation agreement.
             67          (2) The trust has authority to enter into participation agreements with participants on
             68      behalf of designated beneficiaries under the following terms and agreements:
             69          (a) each participation agreement may include one or more designated beneficiaries, and
             70      for each designated beneficiary have a participant account, which the trust shall account for
             71      separately;
             72          (b) [(i)] each participation agreement shall require a participant to agree to invest [at least:]
             73      a minimum amount determined by the board;
             74          [(A) $2,500 initially and not less than $100 per month from the date of the participation
             75      agreement until at least the 16th birthday of the youngest designated beneficiary; or]
             76          [(B) $10,000 initially;]
             77          [(ii) the program administrator may increase these minimums at his discretion;]
             78          (c) each participation agreement shall state clearly that there are no guarantees regarding
             79      moneys in the trust, either as to earnings or as to return of principal, but that the value of each
             80      participant account depends on the performance of the mutual funds chosen by the investment
             81      advisor and the fees and charges under the participation agreement;
             82          (d) the participation agreement does not guarantee in any way that higher education costs
             83      will be equal to projections and estimates provided by the trust or that any designated beneficiary
             84      named in any participation agreement will:
             85          (i) be admitted to an institution of higher education;
             86          (ii) if admitted, be determined a resident for tuition purposes by the institution;
             87          (iii) be allowed to continue attendance at the institution following admission; or
             88          (iv) graduate from an institution of higher education;
             89          (e) each participation agreement shall include provisions necessary to comply with Section


             90      529 of the Code;
             91          (f) each participation agreement shall provide that any contributor to, or designated
             92      beneficiary under, the participation agreement may not direct the investment of any contributions
             93      or earnings on contributions;
             94          (g) each participation agreement shall provide that no part of the money in any participant
             95      account may be used as security for a loan;
             96          (h) each participation agreement shall provide that the participant may withdraw moneys
             97      from any participant account at any time;
             98          (i) each participation agreement may provide for a reasonable fee, consisting of two parts:
             99          (i) the first, an annual administrative charge payable to the administrative fund, assessed
             100      against the assets held under the participation agreement, not to exceed $50 annually; and
             101          (ii) the second, a daily charge deducted from the assets of the program fund at a rate
             102      equivalent to an annual effective rate of not more than .50%, no more than .25% of which shall
             103      be payable to the administrative fund, and no more than .25% of which shall be payable to the
             104      investment advisor for the trust;
             105          (j) each participation agreement shall provide that if a designated beneficiary graduates
             106      from an institution of higher education and a balance remains in the participation account
             107      established for the beneficiary, then the participant shall notify the program administrator and
             108      request an immediate refund of the remaining balance;
             109          (k) each participation agreement shall provide that no participant may borrow from the
             110      trust; and
             111          (l) each participation agreement shall provide that, notwithstanding any other provision
             112      of law, the program administrator may amend the agreement unilaterally and retroactively, if
             113      necessary, to maintain the trust as a qualified state tuition program under Section 529 of the Code.
             114          Section 3. Section 59-10-114 is amended to read:
             115           59-10-114. Additions to and subtractions from federal taxable income of an
             116      individual.
             117          (1) There shall be added to federal taxable income of a resident or nonresident individual:
             118          (a) the amount of any income tax imposed by this or any predecessor Utah individual
             119      income tax law and the amount of any income tax imposed by the laws of another state, the District
             120      of Columbia, or a possession of the United States, to the extent deducted from federal adjusted


             121      gross income, as defined by Section 62, Internal Revenue Code, in determining federal taxable
             122      income;
             123          (b) a lump sum distribution allowable as a deduction under Section 402(e)(3), Internal
             124      Revenue Code, to the extent deductible under Section 62(a)(8), Internal Revenue Code, in
             125      determining federal adjusted gross income;
             126          (c) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
             127      Code;
             128          (d) a withdrawal from a medical care savings account and any penalty imposed in the
             129      taxable year if:
             130          (i) the taxpayer did not deduct or include the amounts on his federal tax return pursuant
             131      to Section 220, Internal Revenue Code; and
             132          (ii) the withdrawal is subject to Subsections 31A-32-105 (1) and (2); and
             133          (e) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
             134      Savings Incentive Program, in the year in which the amount is refunded.
             135          (2) There shall be subtracted from federal taxable income of a resident or nonresident
             136      individual:
             137          (a) the interest or dividends on obligations or securities of the United States and its
             138      possessions or of any authority, commission, or instrumentality of the United States, to the extent
             139      includable in gross income for federal income tax purposes but exempt from state income taxes
             140      under the laws of the United States, but the amount subtracted under this subsection shall be
             141      reduced by any interest on indebtedness incurred or continued to purchase or carry the obligations
             142      or securities described in this subsection, and by any expenses incurred in the production of
             143      interest or dividend income described in this subsection to the extent that such expenses, including
             144      amortizable bond premiums, are deductible in determining federal taxable income;
             145          (b) 1/2 of the net amount of any income tax paid or payable to the United States after all
             146      allowable credits, as reported on the United States individual income tax return of the taxpayer for
             147      the same taxable year;
             148          (c) the amount of adoption expenses which, for purposes of this subsection, means any
             149      actual medical and hospital expenses of the mother of the adopted child which are incident to the
             150      child's birth and any welfare agency, child placement service, legal, and other fees or costs relating
             151      to the adoption;


             152          (d) amounts received by taxpayers under age 65 as retirement income which, for purposes
             153      of this section, means pensions and annuities, paid from an annuity contract purchased by an
             154      employer under a plan which meets the requirements of Section 404 (a)(2), Internal Revenue Code,
             155      or purchased by an employee under a plan which meets the requirements of Section 408, Internal
             156      Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District
             157      of Columbia, to the employee involved or the surviving spouse;
             158          (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
             159      retirement exemption;
             160          (f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
             161      Revenue Code, for each dependent child with a disability and adult with a disability who is
             162      claimed as a dependent on a taxpayer's return;
             163          (g) any amount included in federal taxable income that was received pursuant to any
             164      federal law enacted in 1988 to provide reparation payments, as damages for human suffering, to
             165      United States citizens and resident aliens of Japanese ancestry who were interned during World
             166      War II;
             167          (h) subject to the limitations of Subsection (3)(e), 60% of the amounts paid by the taxpayer
             168      during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, Insurance
             169      Code, for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents to the extent the
             170      amounts paid for health insurance were not deductible under Sections 125, 162, or 213, Internal
             171      Revenue Code, in determining federal taxable income;
             172          (i) except as otherwise provided in this subsection, the amount of a contribution made in
             173      the tax year on behalf of the taxpayer to a medical care savings account and interest earned on a
             174      contribution to a medical care savings account established pursuant to Title 31A, Chapter 32,
             175      Medical Care Savings Account Act, to the extent the contribution is accepted by the account
             176      administrator as provided in the Medical Care Savings Account Act, and if the taxpayer did not
             177      deduct or include amounts on his federal tax return pursuant to Section 220, Internal Revenue
             178      Code. A contribution deductible under this subsection may not exceed either of the following:
             179          (i) the maximum contribution allowed under the Medical Care Savings Account Act for
             180      the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered by
             181      health care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other
             182      spouse, and each spouse has a medical care savings account; or


             183          (ii) the maximum contribution allowed under the Medical Care Savings Account Act for
             184      the tax year for taxpayers:
             185          (A) who do not file a joint return; or
             186          (B) who file a joint return, but do not qualify under Subsection (2)(i)(i); and
             187          (j) the amount included in federal taxable income that was derived from money paid by
             188      the taxpayer to the program fund [and investment income earned on those payments] under Title
             189      53B, Chapter 8a, Higher Education Savings Incentive Program, not to exceed amounts determined
             190      under Subsection 53B-8a-106 (1)(d) and investment income earned on participation agreements
             191      under Subsection 53B-8a-106 (1) when used for higher education costs of the beneficiary.
             192          (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for
             193      taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
             194      except that:
             195          (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
             196      over $32,000, the amount of the retirement income exemption that may be subtracted shall be
             197      reduced by 50 cents;
             198          (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
             199      earned over $16,000, the amount of the retirement income exemption that may be subtracted shall
             200      be reduced by 50 cents; and
             201          (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
             202      the amount of the retirement income exemption that may be subtracted shall be reduced by 50
             203      cents.
             204          (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
             205      shall be further reduced according to the following schedule:
             206          (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
             207      over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
             208          (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
             209      earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
             210      cents; and
             211          (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
             212      the amount of the personal retirement exemption shall be reduced by 50 cents.
             213          (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated


             214      by adding to federal adjusted gross income any interest income not otherwise included in federal
             215      adjusted gross income.
             216          (d) For purposes of determining ownership of items of retirement income common law
             217      doctrine will be applied in all cases even though some items may have originated from service or
             218      investments in a community property state. Amounts received by the spouse of a living retiree
             219      because of the retiree's having been employed in a community property state are not deductible as
             220      retirement income of such spouse.
             221          (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
             222      insurance as defined in Title 31A, Chapter 1, Insurance Code, is not allowed:
             223          (i) for an amount that is reimbursed or funded in whole or in part by the federal
             224      government, the state, or an agency or instrumentality of the federal government or the state; and
             225          (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
             226      whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
             226a           h Section 2. Retrospective Operation.
             226b          THIS ACT HAS RETROSPECTIVE OPERATION TO JANUARY 1, 1999. h



Legislative Review Note
    as of 1-25-99 11:17 AM


A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel


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