Bill Text: IA SF439 | 2015-2016 | 86th General Assembly | Introduced
Bill Title: A bill for an act creating an Iowa ABLE savings plan trust, providing deductions and exclusions from the individual income tax and inheritance tax relating to the trust, and including retroactive and other applicability provisions. (Formerly SSB 1210; see SF 490.)
Spectrum: Committee Bill
Status: (Introduced - Dead) 2015-03-16 - Passed subcommittee. [SF439 Detail]
Download: Iowa-2015-SF439-Introduced.html
Senate File 439 - Introduced SENATE FILE BY COMMITTEE ON HUMAN RESOURCES (SUCCESSOR TO SSB 1210) A BILL FOR 1 An Act creating an Iowa ABLE savings plan trust, providing 2 deductions and exclusions from the individual income tax 3 and inheritance tax relating to the trust, and including 4 retroactive and other applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: TLSB 1660SV (1) 86 mm/sc PAG LIN 1 1 Section 1. NEW SECTION. 12I.1 Purpose and definitions. 1 2 1. The general assembly finds that the general welfare 1 3 and well=being of the state are directly related to the 1 4 health, maintenance, independence, and quality of life of its 1 5 disabled residents, and that a vital and valid public purpose 1 6 is served by the creation and implementation of programs that 1 7 encourage and make possible savings to secure funding for 1 8 disability=related expenses on behalf of individuals with 1 9 disabilities that will supplement, but not supplant, other 1 10 benefits provided by various federal, state, and private 1 11 sources. The creation of the means of encouragement for 1 12 citizens to invest in such a program represents the carrying 1 13 out of a vital and valid public purpose. In order to make 1 14 available to the citizens of the state an opportunity to fund 1 15 future disability=related expenses of individuals, it is 1 16 necessary that a public trust be established in which moneys 1 17 may be invested for payment of future disability=related 1 18 expenses of an individual. 1 19 2. As used in this chapter, unless the context otherwise 1 20 requires: 1 21 a. "Account balance limit" means the maximum allowable 1 22 aggregate balance of an account established for a designated 1 23 beneficiary. Account earnings, if any, are included in the 1 24 account balance limit. 1 25 b. "Account owner" means an individual who is a resident of 1 26 this state and who enters into a participation agreement under 1 27 this chapter for the payment of qualified disability expenses 1 28 on behalf of a designated beneficiary. 1 29 c. "Designated beneficiary" means an individual who is a 1 30 resident of this state and who meets the definition of "eligible 1 31 individual" in section 529A of the Internal Revenue Code. 1 32 d. "Internal Revenue Code" means the same as defined in 1 33 section 422.3. 1 34 e. "Iowa ABLE savings plan trust" or "trust" means the trust 1 35 created under section 12I.2. 2 1 f. "Participation agreement" means an agreement between the 2 2 account owner and the trust entered into under this chapter. 2 3 3. "Qualified disability expenses" means the same as defined 2 4 in section 529A of the Internal Revenue Code. 2 5 Sec. 2. NEW SECTION. 12I.2 Creation of Iowa ABLE savings 2 6 plan trust. 2 7 An Iowa ABLE savings plan trust is created. The treasurer of 2 8 state is the trustee of the trust, and has all powers necessary 2 9 to carry out and effectuate the purposes, objectives, and 2 10 provisions of this chapter pertaining to the trust, including 2 11 the power to do all of the following: 2 12 1. Make and enter into contracts necessary for the 2 13 administration of the trust created under this chapter. 2 14 2. Enter into agreements with the state, or any federal or 2 15 other state agency, or other entity as required to implement 2 16 this chapter. 2 17 3. Carry out the duties and obligations of the trust 2 18 pursuant to this chapter. 2 19 4. Accept any grants, gifts, legislative appropriations, 2 20 and other moneys from the state, any unit of federal, state, or 2 21 local government, or any other person, firm, partnership, or 2 22 corporation which the treasurer of state shall deposit into the 2 23 administrative fund or program fund. 2 24 5. Participate in any federal, state, or local governmental 2 25 program for the benefit of the trust. 2 26 6. Procure insurance against any loss in connection with the 2 27 property, assets, or activities of the trust. 2 28 7. Enter into participation agreements with account owners. 2 29 8. Make payments to designated beneficiaries pursuant to 2 30 participation agreements. 2 31 9. Make refunds to account owners upon the termination 2 32 of participation agreements, and partial nonqualified 2 33 distributions to account owners, pursuant to this chapter and 2 34 the limitations and restrictions set forth in this chapter. 2 35 10. Invest moneys from the program fund in any investments 3 1 that are determined by the treasurer of state to be 3 2 appropriate. 3 3 11. Engage investment advisors, if necessary, to assist in 3 4 the investment of trust assets. 3 5 12. Contract for goods and services and engage personnel 3 6 as necessary, including consultants, actuaries, managers, 3 7 legal counsel, and auditors for the purpose of rendering 3 8 professional, managerial, and technical assistance and advice 3 9 to the treasurer of state regarding trust administration and 3 10 operation. 3 11 13. Establish, impose, and collect administrative fees 3 12 and charges in connection with transactions of the trust, and 3 13 provide for reasonable service charges, including penalties for 3 14 cancellations and late payments with respect to participation 3 15 agreements. 3 16 14. Administer the funds of the trust. 3 17 15. Prepare and file reports and notices. 3 18 16. Adopt rules pursuant to chapter 17A for the 3 19 administration of this chapter. 3 20 Sec. 3. NEW SECTION. 12I.3 Participation agreements for 3 21 trust. 3 22 The trust may enter into participation agreements with 3 23 account owners pursuant to the following terms and agreements: 3 24 1. a. The treasurer of state shall allow only one 3 25 participation agreement per designated beneficiary. 3 26 b. The account owner must also be the designated beneficiary 3 27 of the account. However, a trustee or legal guardian may 3 28 be designated as custodian of an account for a designated 3 29 beneficiary who is a minor or who lacks capacity to enter into 3 30 a participation agreement if such designation is not prohibited 3 31 under section 529A of the Internal Revenue Code. 3 32 c. The treasurer of state shall set an annual contribution 3 33 limit and account balance limit to maintain compliance with 3 34 section 529A of the Internal Revenue Code. A contribution 3 35 shall not be permitted to the extent it exceeds the annual 4 1 contribution limit or causes the aggregate balance of the 4 2 account established for the designated beneficiary to exceed 4 3 the applicable account balance limit. 4 4 d. The maximum amount that may be deducted for Iowa income 4 5 tax purposes shall not exceed the maximum deductible amount 4 6 determined for the year pursuant to section 12D.3, subsection 4 7 1, paragraph "a". This maximum amount applies per designated 4 8 beneficiary per year. 4 9 e. Participation agreements may be amended to provide 4 10 for adjusted levels of contributions based upon changed 4 11 circumstances or changes in disability=related expenses. 4 12 f. Any person may make contributions pursuant to a 4 13 participation agreement on behalf of a designated beneficiary 4 14 under rules adopted by the treasurer of state. 4 15 2. The execution of a participation agreement by the trust 4 16 shall not guarantee in any way that future disability=related 4 17 expenses will be equal to projections and estimates provided by 4 18 the trust or that the account owner or designated beneficiary 4 19 is guaranteed any of the following: 4 20 a. A return of principal. 4 21 b. A rate of interest or other return from the trust. 4 22 c. Payment of interest or other return from the trust. 4 23 3. a. A designated beneficiary under a participation 4 24 agreement may be changed as permitted under rules adopted by 4 25 the treasurer of state upon written request of the account 4 26 owner as long as such change would be permitted by section 529A 4 27 of the Internal Revenue Code. 4 28 b. Participation agreements may otherwise be freely amended 4 29 throughout their terms in order to enable account owners to 4 30 increase or decrease the level of participation, change the 4 31 designated beneficiary, and carry out similar matters as 4 32 authorized by rule. 4 33 4. Each participation agreement shall provide that the 4 34 participation agreement may be canceled upon the terms and 4 35 conditions, and upon payment of applicable fees and costs set 5 1 forth and contained in the rules adopted by the treasurer of 5 2 state. 5 3 Sec. 4. NEW SECTION. 12I.4 Program and administrative funds 5 4 == investment and payment. 5 5 1. a. The treasurer of state shall segregate moneys 5 6 received by the trust into two funds: the program fund and the 5 7 administrative fund. 5 8 b. All moneys paid by account owners or other persons 5 9 on behalf of a designated beneficiary in connection with 5 10 participation agreements shall be deposited as received into 5 11 separate accounts for each designated beneficiary within the 5 12 program fund. 5 13 c. Contributions to the trust made on behalf of designated 5 14 beneficiaries may only be made in the form of cash. 5 15 d. An account owner or designated beneficiary is not 5 16 permitted to provide investment direction regarding program 5 17 contributions or earnings held by the trust. 5 18 2. Moneys accrued by account owners in the program fund 5 19 of the trust may be used for payments of qualified disability 5 20 expenses. 5 21 3. Moneys in the account of a designated beneficiary may 5 22 be claimed by the Iowa Medicaid program as provided in section 5 23 529A(f) of the Internal Revenue Code and subject to limitations 5 24 imposed by the treasurer of state. 5 25 Sec. 5. NEW SECTION. 12I.5 Cancellation of agreements. 5 26 An account owner may cancel a participation agreement at 5 27 will. Upon cancellation of a participation agreement, an 5 28 account owner shall be entitled to the return of the account 5 29 owner's account balance. 5 30 Sec. 6. NEW SECTION. 12I.6 Repayment and ownership of 5 31 payments and investment income == transfer of ownership rights. 5 32 1. a. An account owner retains ownership of all 5 33 contributions made on behalf of a designated beneficiary under 5 34 a participation agreement up to the date of utilization for 5 35 payment of qualified disability expenses of the designated 6 1 beneficiary. 6 2 b. All income derived from the investment of the 6 3 contributions made on behalf of a designated beneficiary shall 6 4 be considered to be held in trust for the benefit of the 6 5 designated beneficiary. 6 6 2. In the event the program is terminated prior to 6 7 payment of qualified disability expenses for the designated 6 8 beneficiary, the account owner is entitled to a refund of the 6 9 account owner's account balance. 6 10 3. Any amounts which may be paid to any person or persons 6 11 pursuant to the Iowa ABLE savings plan trust but which are not 6 12 listed in this section are owned by the trust. 6 13 4. An account owner may transfer ownership rights to 6 14 another designated beneficiary, including a gift of the 6 15 ownership rights to a designated beneficiary who is a minor, in 6 16 accordance with rules adopted by the treasurer of state and the 6 17 terms of the participation agreement, so long as the transfer 6 18 would be permitted by section 529A of the Internal Revenue 6 19 Code. 6 20 5. An account owner shall not be entitled to utilize any 6 21 interest in the trust as security for a loan. 6 22 Sec. 7. NEW SECTION. 12I.7 Reports == annual audited 6 23 financial report == reports under federal law. 6 24 1. a. The treasurer of state shall submit an annual 6 25 audited financial report, prepared in accordance with generally 6 26 accepted accounting principles, on the operations of the trust 6 27 by November 1 to the governor and the general assembly. 6 28 b. The annual audit shall be made either by the auditor 6 29 of state or by an independent certified public accountant 6 30 designated by the auditor of state and shall include direct and 6 31 indirect costs attributable to the use of outside consultants, 6 32 independent contractors, and any other persons who are not 6 33 state employees. 6 34 2. The annual audit shall be supplemented by all of the 6 35 following information prepared by the treasurer of state: 7 1 a. Any related studies or evaluations prepared in the 7 2 preceding year. 7 3 b. A summary of the benefits provided by the trust, 7 4 including the number of account owners and designated 7 5 beneficiaries in the trust. 7 6 c. Any other information deemed relevant by the treasurer of 7 7 state in order to make a full, fair, and effective disclosure 7 8 of the operations of the trust. 7 9 3. The treasurer of state shall prepare and submit to the 7 10 secretary of the United States treasury or other required party 7 11 any reports, notices, or statements required under section 529A 7 12 of the Internal Revenue Code. 7 13 Sec. 8. NEW SECTION. 12I.8 Tax considerations. 7 14 1. For federal income tax purposes, the Iowa ABLE savings 7 15 plan trust shall be considered a qualified ABLE program exempt 7 16 from taxation pursuant to section 529A of the Internal Revenue 7 17 Code. The Iowa ABLE savings plan trust meets the requirements 7 18 of section 529A(b) of the Internal Revenue Code as follows: 7 19 a. Pursuant to section 12I.3, subsection 1, paragraph "a", 7 20 only one account per designated beneficiary is allowed. 7 21 b. Pursuant to section 12I.3, subsection 1, paragraph "c", 7 22 a maximum contribution level and account balance level is 7 23 established. 7 24 c. Pursuant to section 12I.3, subsection 1, paragraph 7 25 "f", any person may make contributions to an account that is 7 26 established for the purpose of meeting the qualified disability 7 27 expenses of the designated beneficiary of the account. 7 28 d. Pursuant to section 12I.4, subsection 1, paragraph 7 29 "b", a separate account is established for each designated 7 30 beneficiary. 7 31 e. Pursuant to section 12I.4, subsection 1, paragraph "c", 7 32 contributions may only be made in the form of cash. 7 33 f. Pursuant to section 12I.4, subsection 1, paragraph "d", 7 34 an account owner or designated beneficiary is not permitted to 7 35 provide investment direction regarding program contributions 8 1 or earnings held by the trust. 8 2 g. Pursuant to section 12I.6, subsection 5, an account owner 8 3 shall not pledge any interest in the trust as security for a 8 4 loan. 8 5 2. State income tax treatment of the Iowa ABLE savings plan 8 6 trust shall be as provided in section 422.7, subsections 34 and 8 7 34A. 8 8 3. State inheritance tax treatment of interests in Iowa ABLE 8 9 savings plans shall be as provided in section 450.4, subsection 8 10 9. 8 11 Sec. 9. NEW SECTION. 12I.9 Property rights to assets in 8 12 trust. 8 13 1. The assets of the trust shall at all times be preserved, 8 14 invested, and expended solely and only for the purposes of the 8 15 trust and shall be held in trust for the account owners and 8 16 designated beneficiaries. 8 17 2. Except as provided in section 12I.4, subsection 3, no 8 18 property rights in the trust shall exist in favor of the state. 8 19 3. Except as provided in section 12I.4, subsection 3, the 8 20 assets of the trust shall not be transferred or used by the 8 21 state for any purposes other than the purposes of the trust. 8 22 Sec. 10. NEW SECTION. 12I.10 Construction. 8 23 This chapter shall be construed liberally in order to 8 24 effectuate its purpose. 8 25 Sec. 11. Section 422.7, Code 2015, is amended by adding the 8 26 following new subsections: 8 27 NEW SUBSECTION. 34. a. Subtract the maximum contribution 8 28 that may be deducted for Iowa income tax purposes for a 8 29 contribution on behalf of a designated beneficiary to the Iowa 8 30 ABLE savings plan trust pursuant to section 12I.3, subsection 8 31 1, paragraph "d". 8 32 b. Add the amount resulting from the cancellation of a 8 33 participation agreement refunded to the taxpayer as an account 8 34 owner in the Iowa ABLE savings plan trust to the extent 8 35 previously deducted by the taxpayer or any other person as a 9 1 contribution to the trust. 9 2 c. Add the amount resulting from a withdrawal made by a 9 3 taxpayer from the Iowa ABLE savings plan trust for purposes 9 4 other than the payment of qualified disability expenses to the 9 5 extent previously deducted by the taxpayer or any other person 9 6 as a contribution to the trust. 9 7 NEW SUBSECTION. 34A. Subtract, to the extent included, 9 8 income from interest and earnings received from the Iowa ABLE 9 9 savings plan trust created in chapter 12I. 9 10 Sec. 12. Section 450.4, Code 2015, is amended by adding the 9 11 following new subsection: 9 12 NEW SUBSECTION. 9. On the value of any interest in the Iowa 9 13 ABLE savings plan trust created in chapter 12I. 9 14 Sec. 13. APPLICABILITY. This Act applies to contributions 9 15 to the Iowa ABLE savings plan trust made, and qualified 9 16 disability expenses incurred, on or after July 1, 2015. 9 17 Sec. 14. APPLICABILITY. The section of this Act amending 9 18 section 450.4 applies to estates of decedents dying on or after 9 19 July 1, 2015. 9 20 Sec. 15. RETROACTIVE APPLICABILITY. The section of this 9 21 Act amending section 422.7 applies retroactively to January 1, 9 22 2015, for tax years beginning on or after that date. 9 23 EXPLANATION 9 24 The inclusion of this explanation does not constitute agreement with 9 25 the explanation's substance by the members of the general assembly. 9 26 This bill creates an Iowa ABLE (Achieving A Better Life 9 27 Experience) savings plan trust and provides for various Iowa 9 28 individual income tax and inheritance tax benefits. 9 29 BACKGROUND. On December 19, 2014, the federal Achieving 9 30 A Better Life Experience Act of 2014 (ABLE Act) was enacted 9 31 as part of the federal Tax Increase Prevention Act of 2014 9 32 (Pub. L. No. 113=295). The ABLE Act allows states to create 9 33 programs to assist individuals in saving private funds for 9 34 the purpose of supporting individuals with disabilities. 9 35 Qualifying state programs will allow for the establishment 10 1 of accounts into which eligible disabled individuals or 10 2 others may make contributions for the payment of future 10 3 disability=related expenses of the eligible disabled 10 4 individual. Funds and earnings in accounts established 10 5 under qualifying state programs are afforded federal benefits 10 6 in certain circumstances, including federal tax exemption, 10 7 bankruptcy protection, and exclusion from consideration under 10 8 certain means=tested programs, such as Medicaid or supplemental 10 9 security income. 10 10 IOWA ABLE SAVINGS PLAN TRUST. The bill creates the Iowa 10 11 ABLE savings plan trust (trust) under the treasurer of state 10 12 (state treasurer) that will meet the requirements of {529A of 10 13 the Internal Revenue Code (federal ABLE program). The state 10 14 treasurer is the trustee of the trust and has numerous powers, 10 15 as specified in the bill, for the purpose of carrying out the 10 16 purpose of the trust. 10 17 The trust is authorized to enter into participation 10 18 agreements with individuals for the payment of future qualified 10 19 disability expenses. "Qualified disability expenses" means the 10 20 same as defined under the federal ABLE program, which generally 10 21 defines the term to include expenses related to a designated 10 22 beneficiary's education, housing, transportation, employment 10 23 training and support, assistive technology and personal support 10 24 services, health, prevention and wellness, financial management 10 25 and administrative services, legal fees, expenses for oversight 10 26 and monitoring, funeral and burial expenses, and other expenses 10 27 approved by the secretary of the United States treasury 10 28 (secretary). 10 29 The person with whom the state treasurer enters into a 10 30 participation agreement must be both the account owner and 10 31 designated beneficiary. However, the bill allows a trustee 10 32 or legal guardian to be designated as custodian of an account 10 33 for a designated beneficiary who is a minor or who lacks 10 34 capacity to enter into a participation agreement, provided such 10 35 designation would be allowed under the federal ABLE program. 11 1 "Designated beneficiary" is defined in the bill as a person 11 2 who is a resident of Iowa and who qualifies as an eligible 11 3 individual under the federal ABLE program, which includes 11 4 individuals who are entitled to benefits based on blindness or 11 5 disability under Title II (disability insurance) or Title XVI 11 6 (supplemental security income) of the federal Social Security 11 7 Act if such blindness or disability occurred before attaining 11 8 26 years of age, and if such individual files a disability 11 9 certification with the secretary. 11 10 The bill requires the state treasurer to maintain a separate 11 11 account in the trust for each designated beneficiary of a 11 12 participation agreement. Only one participation agreement 11 13 shall be allowed per designated beneficiary. Any person is 11 14 allowed to make contributions in the form of cash to an account 11 15 on behalf of a designated beneficiary. The trust is required 11 16 to maintain limits on the annual contributions to an account, 11 17 and the aggregate balance in an account, matching those set 11 18 forth in the federal ABLE program, which prohibits annual 11 19 contributions to an account from exceeding the annual gift tax 11 20 exclusion amount ($14,000 for 2015), and prohibits an aggregate 11 21 account balance from exceeding the limit set by a state under 11 22 its qualified tuition program (currently $320,000 for Iowa). 11 23 The bill provides other various terms and conditions for 11 24 participation agreements, use and segregation of trust funds, 11 25 cancellation of agreements and refund of account balances, 11 26 and ownership rights in the trust. The bill provides that an 11 27 account may be claimed by the Iowa Medicaid program upon the 11 28 death of the designated beneficiary, in accordance with the 11 29 federal ABLE program. The bill requires the state treasurer to 11 30 prepare and submit audited financial reports to the governor 11 31 and general assembly, and further requires the state treasurer 11 32 to comply with any reporting requirements of the federal ABLE 11 33 program. The bill applies to qualified disability expenses 11 34 incurred on or after July 1, 2015. 11 35 IOWA TAX BENEFITS. The bill provides several tax benefits 12 1 under the trust. First, the value of any interest in the trust 12 2 of a decedent dying on or after July 1, 2015, is excluded 12 3 from the Iowa inheritance tax. Second, contributions to the 12 4 trust made on or after July 1, 2015, on behalf of a designated 12 5 beneficiary are deductible from the Iowa individual income 12 6 tax up to the maximum amount allowed per beneficiary per year 12 7 for purposes of the Iowa educational savings plan trust in 12 8 Code chapter 12D. For 2015, that amount is set at $3,163. 12 9 Any amounts refunded to a taxpayer from the cancellation of 12 10 a participation agreement or that are withdrawn for purposes 12 11 other than the payment of qualified disability expenses of the 12 12 designated beneficiary must be included in Iowa net income to 12 13 the extent they were previously deducted by the taxpayer or any 12 14 other person as a contribution. Third, income and earnings 12 15 from the trust are exempt from the Iowa individual income tax. 12 16 The individual income tax benefits apply retroactively to 12 17 January 1, 2015, for tax years beginning on or after that date. LSB 1660SV (1) 86 mm/sc
