Report Title:

Qualified Tuition Program; 529 Plans

 

Description:

Provides an annual maximum deduction of $5,000 per individual or $10,000 for a married couple filing jointly for contributions made to a section 529 qualified tuition program in 2009 and thereafter.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

132

TWENTY-FIFTH LEGISLATURE, 2009

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO qualified tuition PROGRAMS.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


SECTION 1. In 1996, Congress enacted section 529 (with respect to qualified tuition programs) of the Internal Revenue Code of 1986, as amended, authorizing tax‑deferred college savings plans now referred to as "529 Plans". Section 529 authorizes states to establish these programs to assist and encourage families to set aside funds for future higher education expenses.

Most states that assess an income tax offer some kind of in-state tax deduction or credit for contributions as an incentive for residents to participate in the college savings plan of their choice and to increase their participation in these programs.

The purpose of this Act is to provide a state income tax deduction for contributions to any qualified tuition program that shall apply to program contributions made in calendar year 2009 and thereafter.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235- Qualified tuition program; tax deduction. (a) The following annual deductions from gross income shall be allowed for contributions to a qualified tuition program established pursuant to section 529 (with respect to qualified tuition programs) of the Internal Revenue Code:

(1) Up to $5,000 for individual taxpayers, but not more than the amount contributed during the taxable or prior year as provided herein;

(2) Up to $5,000 for married couples filing separate returns, but not more than the amount contributed during the taxable or prior year as provided herein; provided that each spouse may claim a deduction of up to $5,000; and

(3) Up to $10,000 for married couples filing joint returns, individuals filing as the head of the household, or individuals filing as surviving spouses, but not more than the amount contributed during the taxable or prior year as provided herein;

provided that the qualified tuition program prominently disclose in its offering or marketing documents that before investing in any qualified tuition program, an investor should consider the features and benefits of the State's qualified tuition program prior to investing and contributing to any such program.

(b) If the amount of the deduction exceeds the taxpayer's taxable income for the taxable year the contribution is made, or if the amount contributed to the qualified tuition program account exceeds the amount allowed to be deducted during the year of contribution, the contribution in excess of the deductible amount may be used as a deduction against the taxpayer's taxable income for up to five subsequent tax years or until the excess deduction is exhausted, whichever occurs first.

(c) Amounts deducted shall be for contributions made by December 31 of the tax year or prior to April 16 of the succeeding year. No deduction shall be allowed for any amounts derived from a withdrawal or rollover from any qualified tuition program. No deduction shall be allowed for contributions to an account made in the same tax year that a withdrawal from that account has occurred. Any deduction taken under this section shall be subject to recapture in the taxable year or years in which any distribution or any other withdrawal is made from a savings account in connection with a qualified tuition program for any reason other than:

(1) To pay qualified higher education expenses;

(2) To rollover to another qualified tuition program established pursuant to section 529 of the Internal Revenue Code;

(3) As a result of the beneficiary's death or disability;

(4) As a result of the beneficiary receiving a scholarship; provided that the aggregate amount of distributions or withdrawals made do not exceed the amount of the scholarship provided during the tax year; or

(5) Amounts withdrawn during any year that are in excess of amounts contributed and taken as deductions."

SECTION 3. Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (r) to read as follows:

"(r) Section 529 (with respect to qualified tuition programs) shall be operative for the purposes of this chapter, except that section 529(c)(6) shall not be operative. For tax treatment see section 235-   ."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval and apply to taxable years beginning after December 31, 2008.

 

INTRODUCED BY:

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