House Introduced Bill 5317

HOUSE BILL No. 5317

October 23, 2001, Introduced by Rep. DeRossett and referred to the Committee on Commerce.

A bill to amend 2000 PA 161, entitled

"Michigan education savings program act,"

by amending sections 2 and 7 (MCL 390.1472 and 390.1477).

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

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Sec. 2. As used in this act:

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(a) "Account" or "education savings account" means an

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account established under this act.

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(b) "Account owner" means the ANY OF THE FOLLOWING:

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(i) THE individual who enters into a Michigan education sav-

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ings program agreement and establishes an education savings

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account. The account owner may also be the designated benefi-

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ciary of the account.

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(ii) AN ENTITY EXEMPT FROM TAXATION UNDER SECTION 501(c)(3)

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OF THE INTERNAL REVENUE CODE OF 1986.

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(iii) A TRUST.

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(c) "Board" means the board of directors of the Michigan

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education trust described in section 10 of the Michigan education

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trust act, 1986 PA 316, MCL 390.1430.

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(d) "Department" means the department of treasury.

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(e) "Designated beneficiary" means the individual designated

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as the individual whose higher education expenses are expected to

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be paid from the account.

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(f) "Eligible educational institution" means that term as

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defined in section 529 of the internal revenue code or a college,

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university, community college, or junior college described in

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section 4, 5, or 6 of article VIII of the state constitution of

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1963 or established under section 7 of article VIII of the state

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constitution of 1963.

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(g) "Internal revenue code" means the United States internal

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revenue code of 1986 in effect on January 1, 1999 or at the

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option of the taxpayer, in effect for the current year.

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(h) "Management contract" means the contract executed

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between the treasurer and the program manager.

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(i) "Member of the family" means a family member as defined

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in section 529 of the internal revenue code.

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(j) "Michigan education savings program agreement" means the

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agreement between the program manager and an account owner that

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establishes an education savings account.

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(k) "Program" means the Michigan education savings program

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established pursuant to this act.

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(l) "Program manager" means the entity selected by the

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treasurer to act as the manager of the program.

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(m) "Qualified higher education expenses" means qualified

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higher education expenses as defined in section 529 of the inter-

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nal revenue code of 1986.

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(n) "Qualified withdrawal" means a distribution that is not

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subject to penalty or taxation under this act or the income tax

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act of 1967, 1967 PA 281, MCL 206.1 to 206.532, and that meets

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any of the following:

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(i) A withdrawal from an account to pay the qualified higher

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education expenses incurred after the account is established of

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the designated beneficiary.

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(ii) A withdrawal made as the result of the death or dis-

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ability of the designated beneficiary of an account.

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(iii) A withdrawal made because a beneficiary received a

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scholarship that paid for all or part of the qualified higher

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education expenses of the beneficiary to the extent the amount of

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the withdrawal does not exceed the amount of the scholarship.

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(iv) A transfer of funds due to the termination of the man-

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agement contract as provided in section 5.

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(v) A transfer of funds due to a change of beneficiary as

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provided in section 8.

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(o) "Treasurer" means the state treasurer.

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Sec. 7. (1) Beginning October 1, 2000, education savings

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accounts may be established under this act.

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(2) Any individual may open 1 or more education savings

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accounts to save money to pay the qualified higher education

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expenses of 1 or more designated beneficiaries.

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(3) To open an education savings account, the individual

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shall enter into a Michigan education savings program agreement

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with the program manager. The Michigan education savings program

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agreement shall be in the form prescribed by the program manager

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and approved by the treasurer and contain all of the following:

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(a) The name, address, and social security number or

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employer identification number of the account owner.

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(b) A designated beneficiary.

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(c) The name, address, and social security number of the

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designated beneficiary.

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(d) Any other information that the treasurer or program man-

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ager considers necessary.

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(4) Any individual may make contributions to an account.

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(5) Contributions to accounts shall only be made in cash, by

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check, by money order, by credit card, or by any similar method

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but shall not be property.

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(6) An account owner may withdraw all or part of the balance

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from an account on 60 days' notice, or a shorter period as autho-

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rized in the Michigan education savings program agreement.

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(7) Distributions from an account shall be used to pay for

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qualified higher education expenses incurred after the account is

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established and only in any of the following circumstances:

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(a) The distribution is made directly to an eligible

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education institution.

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(b) The distribution is made in the form of a check payable

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to both the designated beneficiary and the eligible educational

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institution.

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(c) The distribution is made after the designated benefi-

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ciary submits documentation to show that the distribution is a

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reimbursement for qualified higher education expenses that the

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designated beneficiary has already paid and the program has a

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process for reviewing the validity of the documentation prior to

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the distribution.

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(d) All of the following apply:

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(i) The designated beneficiary certifies prior to the dis-

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tribution that the distribution will be expended for his or her

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qualified higher education expenses within a reasonable time

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after the distribution is made.

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(ii) The program requires the designated beneficiary to pro-

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vide documentation of payment of qualified higher education

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expenses within 30 days after making the distribution and has a

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process for reviewing the documentation.

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(iii) The program retains an account balance that is large

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enough to collect any penalty owed on the distribution if valid

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documentation is not produced.

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(8) If a distribution that is not a qualified withdrawal is

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made, the program manager shall withhold an amount equal to 10%

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of the ACCUMULATED EARNINGS ATTRIBUTABLE TO THE distribution

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amount as a penalty and pay that amount to the department for

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deposit into the general fund. The penalty under this subsection

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may be increased or decreased if the treasurer and the program

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manager determine that it is necessary to increase or decrease

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the penalty to constitute a greater than de minimis penalty for

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purposes of qualifying under section 529 of the internal revenue

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code.

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(9) The program shall provide separate accounting for each

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designated beneficiary.

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