Indexing for inflation of, and making other changes to, the college savings plan income tax deduction. (FE)

Also, under current law, there is a college savings program, commonly referred to as "EdVest II," under which anyone may open an account for a prospective student, regardless of the contributor's relationship to the beneficiary. Individuals may open accounts for themselves, and a prospective student may be the beneficiary of more than one college savings account. Contributions made to an account set up under this program, up to a limit of $3,000 each year for each beneficiary, may be deducted from a contributor's income in the calculation of his or her income taxes if the beneficiary of the account is one of the following: the claimant; the claimant's child; the claimant's grandchild; the claimant's great-grandchild; or the claimant's niece or nephew.

An authorized contributor to an EdVest I or EdVest II account who is not the owner of the account may claim a tax deduction for his or her contribution, subject to the current law limitations, if the claimant is the parent, grandparent, great-grandparent, aunt, or uncle of the beneficiary.

Current law authorizes an income tax deduction for amounts contributed to both EdVest I and EdVest II by a divorced or legally separated parent of a child. The deduction may be claimed without regard to whether the child is his or her dependent. The total annual deduction under these two programs, per beneficiary, claimed by married parents who file jointly or separately, or by the divorced or legally separated parents of a child, may not exceed $3,000. The total annual deduction under these two programs, per beneficiary, claimed by a married person who files separately may not exceed $1,500 per claimant. The total annual deduction under these two programs, per beneficiary, claimed by a formerly married couple may not exceed a total of $3,000, or $1,500 per claimant, except that the former couple's divorce judgment may specify a different division of the $3,000 maximum that may be claimed by each former spouse.

For taxable years beginning after December 31, 2013, this bill indexes for inflation the maximum amount of contributions that may be deducted under EdVest I and EdVest II accounts.

With regard to an EdVest II account, the bill authorizes deductions, generally, that are made on or before April 15 of the taxable year after the taxable year to which the deduction relates. If someone contributes to an EdVest II account more than the maximum amount that may be deducted, the bill allows the taxpayer to carry forward the excess amount contributed to future taxable years. The bill also authorizes an owner or any other individual to claim a deduction for contributions to an EdVest II account that benefits any individual.

Under current law, a beneficiary's right to qualified withdrawals from an EdVest II account is not subject to garnishment, attachment, execution, or other process of law. Under this bill, an EdVest II account is not subject to garnishment, lien, levy, attachment, execution, or other process of law.

Under current law, the College Savings Program Board, which is part of the Department of Administration, is required to promulgate rules for, and administer, the EdVest II program, including rules to determine whether a withdrawal from such an account is a qualified or nonqualified withdrawal under the Internal Revenue Code (IRC), and impose more than a minimal penalty for nonqualified withdrawals.

Under this bill, an individual who receives certain distributions from an EdVest II account must add certain amounts to his or her federal adjusted gross income (FAGI) for the year in which he or she receives the distribution. If the distribution results in the recipient of the distribution being penalized under the IRC, the amounts that must be added to FAGI are any amounts that were not used for a qualified higher education expense to the extent that such amounts were previously claimed as a deduction from FAGI. Also under the bill, an amount in an EdVest II account that is distributed to an owner and rolled over into a qualified tuition program of another state must be added to FAGI, to the extent that such amount was previously claimed as a deduction from FAGI.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.