H.B. 261 Enrolled

HIGHER EDUCATION SAVINGS INCENTIVE
PROGRAM AMENDMENTS
1999 GENERAL SESSION
STATE OF UTAH
Sponsor: Keele Johnson
AN ACT RELATING TO HIGHER EDUCATION; MODIFYING PROVISIONS IN THE
HIGHER EDUCATION SAVINGS AND SUPPLEMENTAL SAVINGS INCENTIVE
PROGRAMS RELATED TO AMOUNTS PARTICIPANTS MAY INVEST IN THE
PROGRAMS; PROVIDING THAT THE STATE BOARD OF REGENTS SHALL ESTABLISH
THOSE AMOUNTS; PROVIDING FOR SAVINGS AMOUNTS IN ADDITION TO THE
AMOUNT WHICH QUALIFIES FOR STATE INCOME TAX DEDUCTIBILITY; AND
PROVIDING FOR RETROSPECTIVE OPERATION.
This act affects sections of Utah Code Annotated 1953 as follows:
AMENDS:
53B-8a-106, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
53B-8b-105, as enacted by Chapter 390, Laws of Utah 1997
59-10-114, as last amended by Chapter 56, Laws of Utah 1997
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 53B-8a-106 is amended to read:
53B-8a-106. Participation agreements for trust.
The trust may enter into participation agreements with participants on behalf of
beneficiaries pursuant to the following terms and agreements:
(1) (a) Each participation agreement shall require a participant to agree to invest a specific
amount of money in the trust for a specific period of time for the benefit of a specific beneficiary,
not to exceed [$1,200 per beneficiary per year, adjusted annually to reflect increases in the
Consumer Price Index] an amount determined by the board.
(b) Participation agreements may be amended to provide for adjusted levels of payments
based upon changed circumstances or changes in educational plans [and may contain penalties for
failure to make payments when scheduled].

(c) A participant may make additional optional payments as long as the total payments for
a specific beneficiary do not exceed the total estimated higher education costs as determined by the
board.
(d) The maximum amount of investments that may be subtracted from federal taxable
income of a resident or nonresident individual under Subsection 59-10-114 (2)(j) shall be $1,200 for
each individual beneficiary for the 1996 calendar year and an amount adjusted annually thereafter
to reflect increases in the Consumer Price Index.
(2) The participation agreement may include a minimum rate of return for the investment
made by the participant.
(3) Beneficiaries designated in participation agreements may be designated from date of birth
through age 16.
(4) Payment of benefits provided under participation agreements must begin not later than
the first full fall academic quarter or semester at an institution of higher education following the
22nd birthday or high school graduation of the beneficiary, whichever is later, unless the participant
notifies the program administrator to the contrary.
(5) The execution of a participation agreement by the trust may not guarantee in any way that
higher education costs will be equal to projections and estimates provided by the trust or that the
beneficiary named in any participation agreement will:
(a) be admitted to an institution of higher education;
(b) if admitted, be determined a resident for tuition purposes by the institution of higher
education, unless the participation agreement is vested;
(c) be allowed to continue attendance at the institution of higher education following
admission; or
(d) graduate from the institution of higher education.
(6) Beneficiaries may be changed as permitted by the rules and regulations of the board upon
written request of the participant prior to the date of admission of any beneficiary under a
participation agreement by an institution of higher education so long as the substitute beneficiary is
eligible for participation.

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(7) Participation agreements may be freely amended throughout their terms in order to enable
participants to increase or decrease the level of participation, change the designation of beneficiaries,
and carry out similar matters as authorized by rule.
(8) Each participation agreement shall provide that the participation agreement may be
canceled upon the terms and conditions, and upon payment of the fees and costs set forth and
contained in the board's rules and regulations.
Section 2. Section 53B-8b-105 is amended to read:
53B-8b-105. Participation agreements -- Content.
(1) Each participation agreement shall provide for the payment of qualified higher education
expenses of the eligible beneficiary of the participation agreement.
(2) The trust has authority to enter into participation agreements with participants on behalf
of designated beneficiaries under the following terms and agreements:
(a) each participation agreement may include one or more designated beneficiaries, and for
each designated beneficiary have a participant account, which the trust shall account for separately;
(b) [(i)] each participation agreement shall require a participant to agree to invest [at least:]
a minimum amount determined by the board;
[(A) $2,500 initially and not less than $100 per month from the date of the participation
agreement until at least the 16th birthday of the youngest designated beneficiary; or]
[(B) $10,000 initially;]
[(ii) the program administrator may increase these minimums at his discretion;]
(c) each participation agreement shall state clearly that there are no guarantees regarding
moneys in the trust, either as to earnings or as to return of principal, but that the value of each
participant account depends on the performance of the mutual funds chosen by the investment
advisor and the fees and charges under the participation agreement;
(d) the participation agreement does not guarantee in any way that higher education costs
will be equal to projections and estimates provided by the trust or that any designated beneficiary
named in any participation agreement will:
(i) be admitted to an institution of higher education;

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(ii) if admitted, be determined a resident for tuition purposes by the institution;
(iii) be allowed to continue attendance at the institution following admission; or
(iv) graduate from an institution of higher education;
(e) each participation agreement shall include provisions necessary to comply with Section
529 of the Code;
(f) each participation agreement shall provide that any contributor to, or designated
beneficiary under, the participation agreement may not direct the investment of any contributions or
earnings on contributions;
(g) each participation agreement shall provide that no part of the money in any participant
account may be used as security for a loan;
(h) each participation agreement shall provide that the participant may withdraw moneys
from any participant account at any time;
(i) each participation agreement may provide for a reasonable fee, consisting of two parts:
(i) the first, an annual administrative charge payable to the administrative fund, assessed
against the assets held under the participation agreement, not to exceed $50 annually; and
(ii) the second, a daily charge deducted from the assets of the program fund at a rate
equivalent to an annual effective rate of not more than .50%, no more than .25% of which shall be
payable to the administrative fund, and no more than .25% of which shall be payable to the
investment advisor for the trust;
(j) each participation agreement shall provide that if a designated beneficiary graduates from
an institution of higher education and a balance remains in the participation account established for
the beneficiary, then the participant shall notify the program administrator and request an immediate
refund of the remaining balance;
(k) each participation agreement shall provide that no participant may borrow from the trust;
and
(l) each participation agreement shall provide that, notwithstanding any other provision of
law, the program administrator may amend the agreement unilaterally and retroactively, if necessary,
to maintain the trust as a qualified state tuition program under Section 529 of the Code.

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Section 3. Section 59-10-114 is amended to read:
59-10-114. Additions to and subtractions from federal taxable income of an individual.
(1) There shall be added to federal taxable income of a resident or nonresident individual:
(a) the amount of any income tax imposed by this or any predecessor Utah individual income
tax law and the amount of any income tax imposed by the laws of another state, the District of
Columbia, or a possession of the United States, to the extent deducted from federal adjusted gross
income, as defined by Section 62, Internal Revenue Code, in determining federal taxable income;
(b) a lump sum distribution allowable as a deduction under Section 402(e)(3), Internal
Revenue Code, to the extent deductible under Section 62(a)(8), Internal Revenue Code, in
determining federal adjusted gross income;
(c) 25% of the personal exemptions, as defined and calculated in the Internal Revenue Code;
(d) a withdrawal from a medical care savings account and any penalty imposed in the taxable
year if:
(i) the taxpayer did not deduct or include the amounts on his federal tax return pursuant to
Section 220, Internal Revenue Code; and
(ii) the withdrawal is subject to Subsections 31A-32-105 (1) and (2); and
(e) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
Savings Incentive Program, in the year in which the amount is refunded.
(2) There shall be subtracted from federal taxable income of a resident or nonresident
individual:
(a) the interest or dividends on obligations or securities of the United States and its
possessions or of any authority, commission, or instrumentality of the United States, to the extent
includable in gross income for federal income tax purposes but exempt from state income taxes
under the laws of the United States, but the amount subtracted under this subsection shall be reduced
by any interest on indebtedness incurred or continued to purchase or carry the obligations or
securities described in this subsection, and by any expenses incurred in the production of interest or
dividend income described in this subsection to the extent that such expenses, including amortizable
bond premiums, are deductible in determining federal taxable income;

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(b) 1/2 of the net amount of any income tax paid or payable to the United States after all
allowable credits, as reported on the United States individual income tax return of the taxpayer for
the same taxable year;
(c) the amount of adoption expenses which, for purposes of this subsection, means any actual
medical and hospital expenses of the mother of the adopted child which are incident to the child's
birth and any welfare agency, child placement service, legal, and other fees or costs relating to the
adoption;
(d) amounts received by taxpayers under age 65 as retirement income which, for purposes
of this section, means pensions and annuities, paid from an annuity contract purchased by an
employer under a plan which meets the requirements of Section 404 (a)(2), Internal Revenue Code,
or purchased by an employee under a plan which meets the requirements of Section 408, Internal
Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District
of Columbia, to the employee involved or the surviving spouse;
(e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
retirement exemption;
(f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
Revenue Code, for each dependent child with a disability and adult with a disability who is claimed
as a dependent on a taxpayer's return;
(g) any amount included in federal taxable income that was received pursuant to any federal
law enacted in 1988 to provide reparation payments, as damages for human suffering, to United
States citizens and resident aliens of Japanese ancestry who were interned during World War II;
(h) subject to the limitations of Subsection (3)(e), 60% of the amounts paid by the taxpayer
during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, Insurance Code,
for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents to the extent the amounts paid
for health insurance were not deductible under Sections 125, 162, or 213, Internal Revenue Code,
in determining federal taxable income;
(i) except as otherwise provided in this subsection, the amount of a contribution made in the
tax year on behalf of the taxpayer to a medical care savings account and interest earned on a

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contribution to a medical care savings account established pursuant to Title 31A, Chapter 32,
Medical Care Savings Account Act, to the extent the contribution is accepted by the account
administrator as provided in the Medical Care Savings Account Act, and if the taxpayer did not
deduct or include amounts on his federal tax return pursuant to Section 220, Internal Revenue Code.
A contribution deductible under this subsection may not exceed either of the following:
(i) the maximum contribution allowed under the Medical Care Savings Account Act for the
tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered by health
care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other spouse, and
each spouse has a medical care savings account; or
(ii) the maximum contribution allowed under the Medical Care Savings Account Act for the
tax year for taxpayers:
(A) who do not file a joint return; or
(B) who file a joint return, but do not qualify under Subsection (2)(i)(i); and
(j) the amount included in federal taxable income that was derived from money paid by the
taxpayer to the program fund [and investment income earned on those payments] under Title 53B,
Chapter 8a, Higher Education Savings Incentive Program, not to exceed amounts determined under
Subsection 53B-8a-106 (1)(d) and investment income earned on participation agreements under
Subsection 53B-8a-106 (1) when used for higher education costs of the beneficiary.
(3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for
taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
except that:
(i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
over $32,000, the amount of the retirement income exemption that may be subtracted shall be
reduced by 50 cents;
(ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income earned
over $16,000, the amount of the retirement income exemption that may be subtracted shall be
reduced by 50 cents; and
(iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000, the

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amount of the retirement income exemption that may be subtracted shall be reduced by 50 cents.
(b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption shall
be further reduced according to the following schedule:
(i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
(ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income earned
over $16,000, the amount of the personal retirement exemption shall be reduced by 50 cents; and
(iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000, the
amount of the personal retirement exemption shall be reduced by 50 cents.
(c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated by
adding to federal adjusted gross income any interest income not otherwise included in federal
adjusted gross income.
(d) For purposes of determining ownership of items of retirement income common law
doctrine will be applied in all cases even though some items may have originated from service or
investments in a community property state. Amounts received by the spouse of a living retiree
because of the retiree's having been employed in a community property state are not deductible as
retirement income of such spouse.
(e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
insurance as defined in Title 31A, Chapter 1, Insurance Code, is not allowed:
(i) for an amount that is reimbursed or funded in whole or in part by the federal government,
the state, or an agency or instrumentality of the federal government or the state; and
(ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
Section 4. Retrospective operation.
This act has retrospective operation to January 1, 1999.

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