§ 44-30-25 - Modification relating to family education accounts.
SECTION 44-30-25
§ 44-30-25 Modification relating to familyeducation accounts. – (a) "Family education account" means an account created by an individualtaxpayer for the purpose of providing qualified educational benefits to aqualified beneficiary, but only if the account is created by a writtengoverning instrument as prescribed by the tax administrator that designates theaccount as a Rhode Island family education account and that meets the followingrequirements:
(1) The depositary is a qualified depositary.
(2) The assets of the account will not be commingled withother property except in a common trust fund or common investment fund.
(3) The account balance deemed to be distributed to thetaxpayer not later than the last day of any taxable year of the taxpayer unlessthe beneficiary remained qualified with respect to the taxpayer on at least oneday during such year.
(4) In the case of an account having a qualified beneficiarydescribed in subdivision (b)(1) of this section, no contributions to theaccount may be made after the taxpayer has attained age twenty-one (21), and inthe case of an account having a qualified beneficiary described in subdivision(b)(2) of this section, no contribution may be made to the account unless thebeneficiary is a dependent of the taxpayer.
(b) "Qualified beneficiary" means an individual designated byname or class in the instrument creating the account who is:
(1) The taxpayer; or
(2) A dependent of the taxpayer as defined in 26 U.S.C.§ 152. In the case of an individual whose parents are divorced and who isa dependent of one of the parents, the individual shall be treated as thequalified beneficiary of each parent. No person shall be a qualifiedbeneficiary after obtaining a bachelor's degree, any degree equivalent thereto,or any more advanced degree.
(c) "Qualified depositary" means:
(1) Any national bank, federal savings and loan association,federal savings bank, federal insured credit union, or other institutionchartered by the United States of America authorized to accept deposits whichhas its principal business office in the state of Rhode Island;
(2) Any institution incorporated under the laws of the stateof Rhode Island authorized to accept insured deposits; and
(3) Any other person who demonstrates to the satisfaction ofthe tax administrator that it will administer the account in a mannerconsistent with the requirements of this section and who submits to thejurisdiction of this state for the purposes of enforcing these requirements.
(d) "Qualified educational benefits" means post-secondaryeducation provided by an educational institution which by virtue of law orcharter is a public or other nonprofit educational institution empowered toprovide a program of education beyond the high school level and which isaccredited by a nationally recognized educational accrediting agency orassociation and awards an associate's, a bachelor's or advanced degree orprovides a program of not less than two (2) years' duration which is acceptablefor full credit toward a bachelor's degree.
(2) For the purposes of this section, the cost to providequalified educational benefits means applicable tuition and fees, room andboard charges not in excess of the median amounts charged by the institutionproviding the qualified educational benefits to students living ininstitution-provided housing, and fees, books, supplies, and equipment requiredfor courses of instruction at the institution.
(e) "Qualified withdrawal" means any withdrawal from a familyeducation account:
(1) The amount of which does not exceed the amount of thecost paid during the taxable year to provide qualified educational benefits toone or more qualified beneficiaries; or
(2) Occurring within sixty (60) days after the death of anyqualified beneficiary if there is no qualified beneficiary younger than thedecedent at the time of his or her death;
(3) To purchase tax exempt bonds issued by the state of RhodeIsland having a maturity of not more than twenty (20) years from the date ofpurchase;
(4) Which transfers the entire balance of a particular familyeducation account from one qualified depository to another; or
(5) Which transfers all or a portion of the balance of aparticular family education account from an account in the name of onequalified or unqualified beneficiary to an account in the name of anotherqualified beneficiary of the same taxpayer.
(f) Income, including gains and losses, on a qualified familyeducation account shall be exempt from taxation under this chapter, but theassets thereof shall be deemed a part of the estate of the taxpayer forpurposes of chapter 22 of this title.
(g) Except as provided in this subsection, any amountwithdrawn or deemed to be withdrawn from a family education account other thanas a qualified withdrawal shall be a modification increasing federal adjustedgross income of the taxpayer in the year of the nonqualified withdrawal, butthe amount of the modification shall not exceed the net modifications reducingthe taxpayer's federal adjusted gross income pursuant to this section for prioryears plus any modification pursuant to subsection (f) of this section for theyear of the nonqualified withdrawal. If any amount shall not be distributed asrequired by subdivision (a)(3) of this section, the amount required to bedistributed shall nevertheless be taken into account as a withdrawal in theyear the amount was required to be distributed. If a non-qualified withdrawalshall be made from a family education account at a time when the taxpayer isnot a resident of Rhode Island, the portion of the modification deemed to beRhode Island source income shall be the amount of the modification multipliedby a fraction the numerator of which shall be the number of taxable yearsduring which the taxpayer maintained the account and was a resident of RhodeIsland and the denominator of which shall be the number of years the taxpayermaintained the account.
(2) Any portion of a family education account used in aprohibited transaction shall be deemed to be withdrawn on the date the portionis so used. The term "prohibited transaction" means any transaction which wouldbe described in 26 U.S.C. § 4975(c)(1)(A), (B), (C), or (D) if the term"plan" as used in that section included a family education account. Forpurposes of applying 26 U.S.C. § 4975(c)(1) to this section, the term"disqualified person" as used in that section has the meaning set forth in 26U.S.C. § 4975(e)(2) disregarding, subparagraphs (A) and (B) of thatparagraph.
(ii) If any portion of the account shall be invested in any"collectible" as defined in 26 U.S.C. § 408(m)(2), the collectible shallbe deemed withdrawn on the first day that any disqualified person shall obtainphysical possession of the collectible.
(h) Upon the death of the taxpayer creating a familyeducation account, the account shall not terminate unless otherwise provided bythe instrument creating the account and the person entitled to the residue ofthe family education account, as provided in the instrument creating theaccount, or if not so provided, as provided in the taxpayer's will or asotherwise provided by law, shall succeed to the rights and obligations of thetaxpayer hereunder, but no person other than a posthumous child of the taxpayerdelivered alive within eleven (11) months from the date of death shall become aqualified beneficiary after the date of the taxpayer's death. Any individualwho was a qualified beneficiary with respect to the deceased taxpayer shallcontinue as a qualified beneficiary until any time that the individual wouldhave ceased to be a qualified beneficiary with respect to the taxpayer if: (1)the taxpayer had continued to live; (2) the taxpayer had continued to providethe individual with the same level of support, adjusted for inflation in thesame manner as is described in 26 U.S.C. § 1(f), as the taxpayer providedto the individual in the last taxable year ending before the taxpayer's date ofdeath; and (3) the individual had continued to have as his or her principalplace of abode the taxpayer's home and had remained a member of the taxpayer'shousehold; provided, that the individual had the taxpayer's home as his or herprincipal place of abode and was a member of the taxpayer's household at alltimes during the period beginning on the first day of the taxpayer's lasttaxable year ending before the taxpayer's date of death and ending on thetaxpayer's date of death.
(i) Every taxpayer establishing a family education accountshall file the returns and provide statements with respect to that account asthe tax administrator may require. Every taxpayer claiming a modification byreason of subsection (f) of this section shall file information as the taxadministrator may require. The information shall be filed for each year untilall amounts in all family education accounts created by the taxpayer have beenwithdrawn or distributed.
(j) Amounts contributed to a family education account andincome earned on that account shall not be subject to involuntary alienation orassignment by the taxpayer and shall be exempt from levy and attachment withrespect to debts of the taxpayer except that this subsection shall not operateto bar any assignment, alienation, attachment or levy:
(1) Arising out of a bankruptcy suit instituted with respectto the taxpayer;
(2) To pay a debt owing to the United States of America;
(3) To pay expenses of providing qualified educationalbenefits to a qualified beneficiary whom the taxpayer has a legal obligation tosupport;
(4) To pay child support; or
(5) To pay any other debt to the extent the taxpayer has madecontributions while insolvent.