HB-5782, As Passed Senate, September 21, 2004
April 21, 2004, Introduced by Rep. DeRossett and referred to the Committee on Tax Policy.
A bill to amend 2000 PA 161, entitled
"Michigan education savings program act,"
by amending sections 2, 7, 8, and 9 (MCL 390.1472, 390.1477,
390.1478, and 390.1479), as amended by 2001 PA 215.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
1 Sec. 2. As used in this act:
2 (a) "Account" or "education savings account" means an account
3 established under this act.
4 (b) "Account owner" means any of the following:
5 (i) The individual who enters into a Michigan education
6 savings program agreement and establishes an education savings
7 account. The account owner may also be the designated
8 beneficiary of the account.
9 (ii) An entity exempt from taxation under section 501(c)(3)
10 of the internal revenue code or an estate or trust that enters
1 into a Michigan education savings program agreement and
2 establishes an education savings account.
3 (c) "Board" means the board of directors of the Michigan
4 education trust described in section 10 of the Michigan education
5 trust act, 1986 PA 316, MCL 390.1430.
6 (d) "Department" means the department of treasury.
7 (e) "Designated beneficiary" means the individual designated
8 as the individual whose higher education expenses are expected to
9 be paid from the account.
10 (f) "Eligible educational institution" means that term as
11 defined in section 529 of the internal revenue code or a college,
12 university, community college, or junior college described in
13 section 4, 5, or 6 of article VIII of the state constitution of
14 1963 or established under section 7 of article VIII of the state
15 constitution of 1963.
16 (g) "Internal revenue code" means the United States internal
17 revenue code of 1986 in effect on January 1, 2002 or at the
18 option of the taxpayer, in effect for the current year.
19 (h) "Management contract" means the contract executed between
20 the treasurer and the program manager.
21 (i) "Member of the family" means a family member as defined
22 in section 529 of the internal revenue code.
23 (j) "Michigan education savings program agreement" means the
24 agreement between the program and an account owner that
25 establishes an education savings account.
26 (k) "Program" means the Michigan education savings program
27 established pursuant to this act.
1 (l) "Program manager" means the entity selected by the
2 treasurer to act as the manager of the program.
3 (m) "Qualified higher education expenses" means qualified
4 higher education expenses as defined in section 529 of the
5 internal revenue code.
6 (n) "Qualified withdrawal" means a distribution that is not
7 subject to a penalty or an excise tax under section 529 of the
8 internal revenue code, a penalty under this act, or taxation
9 under the income tax act of 1967, 1967 PA 281, MCL 206.1 to
10 206.532, and that meets any of the following:
11 (i) A withdrawal from an account to pay the qualified higher
12 education expenses of the designated beneficiary incurred after
13 the account is established.
14 (ii) A withdrawal made as the result of the death or
15 disability of the designated beneficiary of an account.
16 (iii) A withdrawal made because a beneficiary received a
17 scholarship that paid for all or part of the qualified higher
18 education expenses of the beneficiary to the extent the amount of
19 the withdrawal does not exceed the amount of the scholarship.
20 (iv) A transfer of funds due to the termination of the
21 management contract as provided in section 5.
22 (v) A transfer of funds as provided in section 8.
23 (o) "Treasurer" means the state treasurer.
24 Sec. 7. (1) Beginning October 1, 2000, education savings
25 accounts may be established under this act.
26 (2) Any individual or entity described in section 2(b)(ii)
27 may open 1 or more education savings accounts to save money to
1 pay the qualified higher education expenses of 1 or more
2 designated beneficiaries. An account owner shall open only 1
3 account for any 1 designated beneficiary. Each account opened
4 under this act shall have only 1 designated beneficiary.
5 (3) To open an education savings account, the individual or
6 entity described in section 2(b)(ii) shall enter into a Michigan
7 education savings program agreement with the program. The
8 Michigan education savings program agreement shall be in the form
9 prescribed by the program manager and approved by the treasurer
10 and contain all of the following:
11 (a) The name, address, and social security number or employer
12 identification number of the account owner.
13 (b) A designated beneficiary.
14 (c) The name, address, and social security number of the
15 designated beneficiary.
16 (d) Any other information that the treasurer or program
17 manager considers necessary.
18 (4) Any individual or entity described in section 2(b)(ii)
19 may make contributions to an account.
20 (5) Contributions to accounts shall only be made in cash, by
21 check, by money order, by credit card, or by any similar method
22 as approved by the state treasurer but shall not be property.
23 (6) An account owner may withdraw all or part of the balance
24 from an account on 60 days' notice, or a shorter period as
25 authorized in the Michigan education savings program agreement.
26 (7) Distributions
from an account shall be used to pay for
27 qualified higher
education expenses incurred after the account is
1 established and only
in any of the following circumstances:
2 requested on a form approved by the state treasurer. The program
3 manager may retain from the distribution the amount necessary to
4 comply with federal and state tax laws. Distributions may be
5 made in the following manner:
6 (a) The
distribution is made directly Directly to an
7 eligible education institution.
8 (b) The
distribution is made in In the form of a check
9 payable to both the designated beneficiary and the eligible
10 educational institution.
11 (c) The
distribution is made after In the form of a check
12 payable to the designated
beneficiary submits documentation to
13 show that the
distribution is a reimbursement for qualified
14 higher education
expenses that the designated beneficiary has
15 already paid and the
program has a process for reviewing the
16 validity of the
documentation prior to the distribution or
17 account holder.
18 (d) All of the following
apply:
19 (i) The designated beneficiary certifies prior to the
20 distribution that the
distribution will be expended for his or
21 her qualified higher
education expenses within a reasonable time
22 after the distribution
is made.
23 (ii) The program requires the designated beneficiary to
24 provide documentation
of payment of qualified higher education
25 expenses within 30
days after making the distribution and has a
26 process for reviewing
the documentation.
27 (iii) The program retains an account balance that is large
1 enough to collect any
penalty owed under subsection (8) on the
2 distribution if valid
documentation is not produced.
3 (8) Except as otherwise provided in this subsection for tax
4 years that begin before January 1, 2002, if the distribution is
5 not a qualified withdrawal, the program manager shall withhold an
6 amount equal to 10% of the distribution amount as a penalty and
7 pay that amount to the department for deposit into the general
8 fund. For a distribution made after December 31, 2001 that is
9 not a qualified withdrawal, if an excise tax or penalty is
10 imposed under section 529 of the internal revenue code pursuant
11 to section 530(d)(4) of the internal revenue code, a penalty
12 shall not be imposed under this subsection for that
13 distribution. If a distribution that is not a qualified
14 withdrawal is made after December 31, 2001 and an excise tax or
15 penalty is not imposed under section 529 of the internal revenue
16 code pursuant to section 530(d)(4) of the internal revenue code
17 on that distribution, the program manager shall withhold an
18 amount equal to 10% of the accumulated earnings attributable to
19 that distribution amount as a penalty and pay that amount to the
20 department for deposit into the general fund. The penalty under
21 this subsection may be increased or decreased if the treasurer
22 and the program manager determine that it is necessary to
23 increase or decrease the penalty to comply with section 529 of
24 the internal revenue code.
25 (9) The program shall provide separate accounting for each
26 designated beneficiary.
27 Sec. 8. (1) An account owner may designate another
1 individual as a successor owner of the account in the event of
2 the death of the account owner.
3 (2) An account owner may change the designated beneficiary of
4 an account to a member of the family of the previously designated
5 beneficiary as provided in the management contract or as
6 otherwise provided in this act.
7 (3) An account owner may transfer ownership of all or a
8 portion of an account to an individual or entity that is eligible
9 to be an account owner under this act.
10 (4) (3) An
account owner may transfer all or a portion of
11 an account to another education savings account. The designated
12 beneficiary of the account to which the transfer is made must be
13 a member of the family.
14 (5) (4) An
account owner may transfer all or a portion of
15 an account to an account in a qualified tuition program under
16 section 529 of the internal revenue code, other than the program
17 under this act, once every 12 months, without a change in
18 designated beneficiary.
19 (6) (5) Changes
in designated beneficiaries and transfers
20 under this section are not permitted to the extent that the
21 change or transfer would constitute excess contributions or
22 unauthorized investment choices.
23 Sec. 9. (1) Except as otherwise provided in this section,
24 an account owner or a designated beneficiary of any account shall
25 not direct the investment of any contributions to an account or
26 the earnings on an account.
27 (2) An account owner may select among different investment
1 strategies designed exclusively by the program manager in all of
2 the following circumstances to the extent allowed under section
3 529 of the internal revenue code:
4 (a) At the time any contribution is made to an account with
5 respect to the amount of that contribution.
6 (b) Once each calendar year with respect to the accumulated
7 account balance.
8 (c) When an account owner makes a change in designated
9 beneficiary of an account.
10 (3) The program may allow board members or employees of the
11 program, or the board members or employees of a contractor hired
12 by the program to perform administrative services, to make
13 contributions to an account.
14 (4) An interest in an account shall not be used by an account
15 owner or a designated beneficiary as security for a loan. Any
16 pledge of an interest in an account has no force or effect.