§256-4 - Program requirements; college account.
§256-4 Program requirements; college account. (a) A college account may be opened by any person who desires to save money for the payment of the qualified higher education expenses on behalf of a designated beneficiary. The person shall be considered the account owner as defined in section 256-1. An application for an account shall be in the form prescribed by the program and shall contain the following:
(1) The name, address, and social security number or employer identification number of the account owner;
(2) The designation of a beneficiary;
(3) The name, address, and social security number of the designated beneficiary;
(4) A certification relating to no excess contributions; and
(5) Other information as the program may require.
(b) Any person or entity, regardless of whether the person or entity is the account owner, may make contributions to the account after the account is opened.
(c) Contributions to accounts may be made only in cash.
(d) An account owner may withdraw all or part of the balance from an account on sixty days' notice or a shorter period as may be authorized under rules governing the program. The rules shall include provisions to generally enable the determination of whether a withdrawal is a nonqualified withdrawal or a qualified withdrawal. The rules may require one or more of the following:
(1) An account owner seeking to make a qualified withdrawal shall provide certifications of qualified higher education expenses and other information required to comply with section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation;
(2) Withdrawals not meeting the requirements of this section shall be treated as nonqualified withdrawals by the program manager, and if the withdrawals are subsequently deemed qualified withdrawals within a reasonable time period as specified by the director of finance, the account owner shall seek any refund of penalties directly from the program.
(e) An account owner may change the designated beneficiary of an account to an individual who is a member of the family of the prior designated beneficiary. An account owner may transfer all or a portion of an account to another college account, the designated beneficiary of which is a member of the same family, as defined in section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation, as the beneficiary of the initial account. Changes in designated beneficiaries and transfers under this section shall not be permitted if they constitute excess contributions.
(f) In the case of any nonqualified withdrawal from an account, an amount equal to ten per cent (or that rate imposed under final regulations adopted by the Internal Revenue Service) of the portion of the withdrawal constituting income as determined in accordance with the principles of section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation, shall be collected as a penalty and paid to the college savings program trust fund, as provided under section 529 of the Internal Revenue Code of 1986, as amended, successor legislation, or any guidance issued by the Internal Revenue Service.
(g) The percentage of the penalty described in subsection (f) may be increased if the director of finance determines that the amount of the penalty must be increased to constitute a greater than de minimis penalty for purposes of qualifying the program as a qualified state tuition program under section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation.
(h) The percentage of the penalty described in subsection (f) may be decreased by rule if it is determined the penalty is greater than the amount required to constitute a greater than de minimis penalty for purposes of qualifying the program as a qualified state tuition program under section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation.
(i) The program shall provide separate accounting for each designated beneficiary.
(j) No account owner or designated beneficiary of any account shall be permitted to direct the investment of any contributions to an account or the earnings on it.
(k) Neither an account owner nor a designated beneficiary shall use an interest in an account as security for a loan. Any pledge of an interest in an account shall be of no force and effect.
(l) Contributions on behalf of a designated beneficiary in excess of those necessary to provide for the qualified higher education expenses of the designated beneficiary shall not be allowed. The prohibition on excess contributions shall conform to section 529 of the Internal Revenue Code of 1986, as amended, or successor legislation.
(m) If there is any distribution from an account to any individual or for the benefit of any individual during a calendar year, the distribution shall be reported to the Internal Revenue Service and the account owner, the designated beneficiary, or the distributee, to the extent required by federal law or regulation.
Statements shall be provided to each account owner at least once each year within sixty days after the end of the twelve-month period to which they relate. The statement shall identify the contributions made during a preceding twelve-month period, the total contributions made to the account through the end of the period, the value of the account at the end of the period, distributions made during the period, and any other information that the director of finance requires to be reported to the account owner.
Statements and information relating to accounts shall be prepared and filed to the extent required by federal and state tax law.
(n) A local government or organization described in section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or successor legislation, may open and become the account owner of an account to fund scholarships for persons whose identity shall be determined upon disbursement. Any account opened pursuant to this subsection is not required to comply with the condition set forth in subsection (a) that a beneficiary be designated when an account is opened, and each individual who receives an interest in the account as a scholarship shall be treated as a designated beneficiary.
(o) An annual fee may be imposed upon the account owner for the maintenance of the account.
(p) A minimum length of time as determined by the director of finance may be required of the account before distributions for qualified higher education can be made.
(q) The program shall disclose in writing the following information to each account owner and prospective account owner of a college account:
(1) The terms and conditions for purchasing a college account;
(2) Any restrictions on the substitution of beneficiaries;
(3) The person or entity entitled to terminate the tuition savings agreement;
(4) The period of time during which a beneficiary may receive benefits under the tuition savings agreement;
(5) The terms and conditions under which money may be wholly or partially withdrawn from the program, including any reasonable charges and fees that may be imposed for withdrawal; and
(6) The probable tax consequences associated with contributions to and distributions from accounts. [L 1999, c 81, pt of §2; am L 2000, c 90, §3; am L 2009, c 91, §2]
Note
The 2009 amendment applies to taxable years beginning after December 31, 2008. L 2009, c 91, §4.