ED. SAVINGS PROGRAM - H.B. 5317 (S-2): FLOOR ANALYSIS
House Bill 5317 (Substitute S-2 as reported)
Sponsor: Representative Gene DeRossett
House Committee: Commerce
Senate Committee: Finance
CONTENT
The bill would amend the Michigan Education Savings Program Act to do the following, effective January 1, 2002:
-- Provide that an unqualified withdrawal from an education savings account would not be subject to a State penalty, if a Federal penalty or tax were imposed on the withdrawal.
-- Revise the basis for the current State penalty.
-- Allow certain charitable entities to open an education savings account.
-- Allow an individual account owner to select investment strategies once per year.
-- Raise the maximum amount that all accounts, for one individual, may contain.
Under the Act, the proceeds of an education savings account are to be used to pay for a designated beneficiary's higher education expenses. An unqualified withdrawal is subject to a penalty equal to 10% of the distribution, payable to the State's General Fund. The bill provides that a distribution made after December 31, 2001, that was not a qualified withdrawal would not be subject to a penalty, if a penalty or tax were imposed on the distribution under the Internal Revenue Code. If a Federal tax or penalty were not imposed for a distribution that was not a qualified withdrawal, the manager of the education savings program would have to withhold a penalty equal to 10% of the accumulated earnings attributable to the distribution amount (rather than 10% of the distribution amount), for payment to the General Fund.
Currently, the total contributions to all accounts that name one individual as the designated beneficiary may not exceed $125,000. The bill provides instead that the maximum account balance of all the accounts naming one individual as the designated beneficiary could not exceed $235,000.
MCL 390.1472 - Legislative Analyst: G. Towne
FISCAL IMPACT
State Government. This bill would have a very minimal negative impact on General Fund revenue. Nonqualified withdrawals from education savings accounts have been extremely rare to-date. As a result, the revenue collected from the penalties assessed on these withdrawals, which would be eliminated under this bill, has so far netted the General Fund less than $1,000.
Local Governments. The bill would have no fiscal impact on local government.
Date Completed: 12-10-01 - Fiscal Analyst: J. WortleyFloor\hb5317 - Bill Analysis @ http://www.senate.state.mi.us/sfa
This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.