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S. 335 (114th): A bill to amend the Internal Revenue Code of 1986 to improve 529 plans.


The text of the bill below is as of May 21, 2015 (Reported by Senate Committee). The bill was not enacted into law.


II

Calendar No. 97

114th CONGRESS

1st Session

S. 335

[Report No. 114–56]

IN THE SENATE OF THE UNITED STATES

February 2, 2015

(for himself, Mr. Casey, Mr. Burr, Mr. Warner, Mr. Roberts, Mr. Cardin, Mr. Scott, Ms. Ayotte, Mr. Isakson, Mr. McConnell, Ms. Collins, Mr. Schumer, Mrs. Fischer, Mr. Gardner, Mr. Moran, Mr. Wicker, Mr. King, Mr. Portman, Mr. Toomey, and Ms. Murkowski) introduced the following bill; which was read twice and referred to the Committee on Finance

May 21, 2015

Reported by , with an amendment

Strike out all after the enacting clause and insert the part printed in italic

A BILL

To amend the Internal Revenue Code of 1986 to improve 529 plans.

1.

Computer technology and equipment allowed as a qualified higher education expense for section 529 accounts

(a)

Made permanent

Clause (iii) of section 529(e)(3)(A) of the Internal Revenue Code of 1986 is amended by striking in 2009 or 2010.

(b)

Only for use primarily by the beneficiary

Clause (iii) of section 529(e)(3)(A) of such Code is amended by striking used by the beneficiary and the beneficiary’s family and inserting used primarily by the beneficiary.

(c)

Effective date

The amendments made by this section shall apply to expenses paid or incurred after December 31, 2014.

2.

Elimination of distribution aggregation requirements

(a)

In general

Clause (ii) of section 529(c)(3)(D) of the Internal Revenue Code of 1986 is amended by inserting before the comma at the end the following: , except for purposes of calculating the earnings portion of any distribution..

(b)

Effective date

The amendment made by this section shall apply to distributions after December 31, 2014.

3.

Contribution of amounts previously distributed in case of withdrawal from school

(a)

In general

Paragraph (3) of section 529(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

(E)

Special rule for contributions relating to withdrawal from school

In the case of a beneficiary who receives a refund of any qualified higher education expenses from an eligible educational institution in connection with withdrawal from enrollment at such institution, subparagraph (A) shall not apply to that portion of any distribution for the taxable year which is recontributed to a qualified tuition program of which such individual is a beneficiary, but only to the extent such recontribution is made not later than 60 days after the date of such refund and does not exceed the refunded amount.

.

(b)

Effective date

The amendment made by this section shall apply with respect to distributions after December 31, 2014.

1.

Findings and purpose

(a)

Findings

Congress finds the following:

(1)

When the Economic Growth and Tax Relief Reconciliation Act of 2001 became law, the tax treatment of section 529 college savings plans was changed so that qualified distributions were no longer taxed as income. The favorable tax treatment of college savings plans was made permanent with the passage of the Pension Protection Act of 2006.

(2)

Section 529 college savings plans empower middle-class families to accumulate savings to offset the rising costs of attending college.

(3)

The latest data from the College Savings Plan Network shows that there are 11.83 million 529 accounts open throughout all 50 states, which represent $244.5 billion in total assets. The average 529 account size is $20,671.

(4)

States that sponsor 529 college savings plans have taken steps to ensure these plans are a tool that all families can use to save for college, including setting minimum contributions as low as $25 per month to encourage participation by families of all income levels.

(5)

The President’s fiscal year 2016 Budget proposes raising taxes by taxing certain future distributions made from 529 college savings plans.

(6)

The tax proposed by the President would discourage the use of 529 college savings plans, requiring families and students to take on more debt.

(7)

Purchase of a computer represents a significant higher education expense and therefore should be eligible for qualified distributions under 529 college savings plans.

(b)

Purpose

It is the purpose of this Act to—

(1)

enact policies that strengthen 529 college savings plans; and

(2)

make 529 plans more modern, consumer-friendly, and responsive to the realities faced by students today.

2.

Computer technology and equipment permanently allowed as a qualified higher education expense for section 529 accounts

(a)

In general

Section 529(e)(3)(A)(iii) of the Internal Revenue Code of 1986 is amended to read as follows:

(iii)

expenses for the purchase of computer or peripheral equipment (as defined in section 168(i)(2)(B)), computer software (as defined in section 197(e)(3)(B)), or Internet access and related services, if such equipment, software, or services are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution.

.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2014.

3.

Elimination of distribution aggregation requirements

(a)

In general

Section 529(c)(3) of the Internal Revenue Code of 1986 is amended by striking subparagraph (D).

(b)

Effective date

The amendment made by this section shall apply to distributions after December 31, 2014.

4.

Recontribution of refunded amounts

(a)

In general

Section 529(c)(3) of the Internal Revenue Code of 1986, as amended by section 3, is amended by adding at the end the following new subparagraph:

(D)

Special rule for contributions of refunded amounts

In the case of a beneficiary who receives a refund of any qualified higher education expenses from an eligible educational institution, subparagraph (A) shall not apply to that portion of any distribution for the taxable year which is recontributed to a qualified tuition program of which such individual is a beneficiary, but only to the extent such recontribution is made not later than 60 days after the date of such refund and does not exceed the refunded amount.

.

(b)

Effective date

(1)

In general

The amendment made by this section shall apply with respect to refunds of qualified higher education expenses after December 31, 2014.

(2)

Transition rule

In the case of a refund of qualified higher education expenses received after December 31, 2014, and before the date of the enactment of this Act, section 529(c)(3)(D) of the Internal Revenue Code of 1986 (as added by this section) shall be applied by substituting not later than 60 days after the date of the enactment of this subparagraph for not later than 60 days after the date of such refund.

May 21, 2015

Reported with an amendment