AB 769

This bill modifies the individual income tax treatment for contributions to and

withdrawals from a college savings account and modifies an administrative rule of

the Department of Financial Institutions related to the college savings program.

Under current law, the College Savings Program Board, which is

administratively attached to DFI, administers the state's college savings programs,

commonly known as “Edvest” and “Tomorrow's Scholar.” The programs are qualified

tuition programs authorized under federal law. Under the programs, anyone may

contribute to an account, commonly called a “529 account,” for the benefit of a

prospective student, regardless of the contributor's relationship to the beneficiary,

and a prospective student may be the beneficiary of more than one account.

Contributions to an account have certain tax advantages under federal and state law.

The bill makes the following changes to the state individual income tax

treatment for contributions to and withdrawals from 529 accounts:

1. Increases the maximum contribution amount an individual may deduct from

the contributor's income. Under current law, the maximum amount for 2019 is

$3,280 (or $1,640 for each contributor who is married and files separately) and is

indexed for inflation. The bill increases the maximum amount to $5,000 (or $2,500

for each contributor who is married and files separately) and eliminates indexing.

The bill also eliminates a provision under current law that limits the maximum

deduction amount for divorced parents to $1,640 for each former spouse.

2. Modifies the contribution deadline for state tax purposes. Under current

law, a contribution made during a taxable year, or on or before April 15 following the

end of the taxable year, may be deducted from the contributor's income for the

taxable year. The bill provides that a contribution for a taxable year must be made

on or before the date on which the contributor is required to file the contributor's

state income tax return, not including any extension, for the taxable year.

3. Modifies the 365-day restriction under current law that applies to account

withdrawals. Under current law, any amount withdrawn from an account within

365 days of the day on which the amount was contributed to the account must be

added to income if the amount was previously deducted from income. The bill limits

the 365-day restriction to apply only to withdrawn amounts that were rolled over to

the account from another state's qualified tuition program within 365 days of

withdrawal.

4. Modifies the 365-day restriction under current law with respect to

carry-overs. Under current law, a contribution to an account in excess of the

maximum deduction amount may be carried forward to future taxable years, but the

carry-over is not allowed if the carry-over amount was withdrawn from the account

within 365 days of the day on which the amount was contributed to the account and

if the amount was previously deducted from income. The bill limits the 365-day

restriction with respect to carry-overs to apply only to withdrawn amounts that were