ARC 8104C

ARC 8104C

Proposing rulemaking related to Iowa educational savings plan trust
and providing an opportunity for public comment

Any interested person may submit written comments concerning this proposed rulemaking. Written comments in response to this rulemaking must be received by the Office of the Treasurer of State no later than 4:30 p.m.

on July 30, 2024. Comments should be directed to:

ITEM 1.Amend rule 781—16.2(12D) as follows:

781—16.2(12D) Definitions. In addition to the terms defined in Iowa Code section 12D.1, the following terms apply to this chapter:

“ABLE account” means an account as defined in Section 529A of the Internal Revenue Code.

“Account” means an account established and maintained under the Iowa educational savings plan trust for a beneficiary.

“Account balance” means the fair market value of an account.

“Account balance limit” means the amount determined periodically by the program administrator as necessary to provide for the qualified higher education expenses of a beneficiary in accordance with Section 529. The account balance limit shall apply to the total of all accounts in the plans for the benefit of a beneficiary.

“Account owner” means the participant or other owner of an accountsame as “participant” as defined in Iowa Code section 12D.1.

“Adjusted maximum annual amount” means the amount that a participantan account owner may annually contribute to an account for a beneficiary and deduct from Iowa income taxes pursuant to Iowa Code chapter 422.

“Beneficiary” means the individual designated as the beneficiary of an account.

“College savings Iowa” means the name and logo registered under Iowa law to represent the direct-sold plan under the Iowa educational savings plan trust.

“Contractor” means any party retained by the program administrator to assist in the day-to-day operations of a plan, including record-keeping, investment advisory and administrative services. The program administrator may delegate any responsibilities with respect to day-to-day operations of a plan to one or more contractors.

“Contribution” means an amount contributed to an account in accordance with the Internal Revenue Code, these rules and the applicable program description.

“Eligible educational institution” means an eligible educational institution as defined in Section 529.

“Iowa advisorIAdvisor 529 plan” means the name and logo registered to represent the advisor-sold plan under the Iowa educational savings plan trust.

“Internal Revenue Code” means the Internal Revenue Code as effective on July 1, 2024.

“ISave 529” means the name and logo registered under Iowa law to represent the direct-sold plan under the Iowa educational savings plan trust.

“K-12 institution” means any elementary or secondary public, private, or religious schoolas defined in Section 529 of the Internal Revenue Code.

“Member of the family” means a member of the family as defined in Section 529, except that for a qualified rollover to a Section 529Aan ABLE account, “member of the family” shall mean as defined in Section 529A of the Internal Revenue Code.

“Nonqualified withdrawal” means a withdrawal from an account that is not a qualified withdrawal or a qualified rollover.

“Participant” means the owner of an account.

“Participation agreement” means the form that the participantaccount owner submits to the plan to identify the participantaccount owner, beneficiary, plan, and other information that may be requested by the plan.

“Plan” means either (1) college savings IowaISave 529, (2) Iowa advisorIAdvisor 529 plan, or (3) any other college savings plan established by the program administrator under the Iowa educational savings plan trust.

“Program administrator” means the treasurer of state.

“Program description” means the description of each plan provided to participantsaccount owners setting forth information with respect to the plan.

“Qualified higher education expenses” means qualified higher education expenses as defined in Section 529. Any reference to qualified higher education expenses includes a reference to expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious schoolas defined in Section 529.

“Qualified rollover” means a distribution of amounts from a plan, which, within 60 days of such distribution, is transferred: (1) to another qualified tuition program for the benefit of the same beneficiary, provided that it has been at least 12 months from the date of a previous transfer to a qualified tuition program for that beneficiary; (2) to another qualified tuition program (or an account in another plan) for the benefit of a member of the family of the beneficiary; or (3) to a Section 529Aan ABLE account for the beneficiary or member of the family of the beneficiary, subject to ABLE account contribution limits.“Qualified rollover” also means a distribution from a plan made in a direct transfer-to-trustee transfer to a Roth IRA in accordance with the rules under 529(c)(3)(E) of the Internal Revenue Code.

“Qualified withdrawal” means a withdrawal from an account used to pay qualified higher education expenses.

“Section 529” means Section 529 of the Internal Revenue Code.

“Successor participantaccount owner” means a successor to the ownership of an account designated as such in accordance with rule 781—16.10(12D) and the applicable program description.

ITEM 2.Amend rule 781—16.3(12D) as follows:

781—16.3(12D) Participation agreement and program description. The following material shall be used to administer the Iowa educational savings plan trust.

16.3(1) Each participantaccount owner shall submit a participation agreement in order to open an account. The participation agreement shall be signed and dated by the participantaccount owner to verify that the participantaccount owner agrees to the terms and conditions of the program. For online applications, participantsthe account owner must confirm that they havethe account owner has read the terms and conditions prior to submitting the application.

16.3(2) Each plan will have a program description setting forth the terms of the plan and describing the investments, procedures and fees applicable to that plan. Each program description shall also set forth the privacy policy adopted by the program administrator for that plan. Persons interested in a plan should consult the program description. A program description may be changed at any time by the program administrator, and any such change may impact the rights of participantsaccount owners and beneficiaries under the plan.

ITEM 3.Amend rule 781—16.4(12D) as follows:

781—16.4(12D) Forms.

16.4(1) Appropriate forms must be completed on paper, online or via telephone (whichever is applicable for the requested actions) to perform the actions listed below. Current forms are available online at www.collegesavingsiowa.comISave529.com for college savings IowaISave 529 and at www.iowaadvisor529.com for the Iowa advisorIAdvisor 529 plan. Actions whichthat require the completion of an appropriate form include the following:

a.

No change.

b.

Account changes.

(1)

Update the participantaccount owner or beneficiary contact information.

(2)

to (4)

No change.

c.

to f.

No change.

16.4(2) The contractor may from time to time provide additional forms for use by participantsaccount owners and beneficiaries in connection with actions involving a plan and will make those forms available online and in paper format and may authorize substitute forms for a plan or a process in lieu of existing forms.

ITEM 4.Amend rule 781—16.5(12D) as follows:

781—16.5(12D) ParticipantAccount owner eligibility. ParticipantsAccount owners must meet the following requirements:

16.5(1) The participantaccount owner must be an individual, individual’s legal representative, trust, estate, or an organization described in Section 501(c)(3) of the Internal Revenue Code and exempt from taxation under Section 501(a) of the Internal Revenue Code.

16.5(2) An individual participantaccount owner must be at least 18 years old and a United States citizen or resident alien with a valid social security number or tax identification number.

16.5(3) A participantAn account owner shall execute a participation agreement that specifies the plan selected by the participantaccount owner and the terms and conditions under which the participantaccount owner shall participate in the trust.

16.5(4) A participantAn account owner shall, on signing a participation agreement, provide the plan with the participant’saccount owner’s social security number or tax identification number and the other information required on the participant agreement.

16.5(5) Participants whichAccount owners that are trusts must submit evidence that the individual trustee is so authorized and agrees to the terms and conditions of the participation agreement and must provide the information requested by the program administrator. Participants whichAccount owners that are described in Section 501(c)(3) of the Internal Revenue Code must provide their tax identification number and any other information requested by the program administrator.

ITEM 5.Amend rule 781—16.6(12D) as follows:

781—16.6(12D) Beneficiary eligibility. A beneficiary of a participation agreement may be designated at any time after birth and assignment of a social security number. This rule establishes the eligibility criteria for a beneficiary.

16.6(1) No change.

16.6(2) A participantAn account owner shall, on signing a participation agreement, provide the contractor a valid social security number for the beneficiary.

ITEM 6.Amend rule 781—16.7(12D) as follows:

781—16.7(12D) Program administrator rights and responsibilities.

16.7(1) The program administrator reserves the right to:

a.

No change.

b.

Freeze an account or suspend account services or do both upon the notification to the plan of the death of a participantan account owner until the plan receives required documentation in good order and reasonably believes that it is lawful to transfer the account ownership to the successor participantaccount owner;

c.

Redeem an account, without the participant’saccount owner’s permission, in cases of threatening conduct or suspicious, fraudulent, or illegal activity; and

d.

Reject a contribution for any reason, including contributions that the plan believes are not in the best interests of the plan, a portfolio, or the participantsaccount owners.

16.7(2) The risk of market loss, tax implications, penalties, and any other expenses, as a result of such an account freeze, account redemption, or contribution rejection, will be solely the participant’saccount owner’s responsibility.

16.7(3) The contractor will provide each participantaccount owner a fourth-quarter statement. In addition, the program administrator will provide each participantaccount owner that had an account with either contributions or withdrawals in the first, second, or third quarter with a quarterly statement for that account.

ITEM 7.Amend rule 781—16.8(12D) as follows:

781—16.8(12D) Contributions. Contributions are deductible in accordance with Iowa income tax laws and administrative rules of the department of revenue. Participation agreements shall be for the benefit of a specific beneficiary. This rule provides for implementation of this provision.

16.8(1) ParticipantsAccount owners are allowed to make contributions at any time during the calendar year provided that each contribution is made in accordance with the minimum contribution and other requirements set forth in the program description.

16.8(2) No change.

16.8(3) The program administrator shall determine the adjusted maximum annual amount that a participantan account owner may contribute and deduct from Iowa income taxes pursuant to Iowa Code chapter 422 on behalf of a beneficiary for the calendar year by applying the applicable inflation adjustment. The adjusted annual maximum amount shall be communicated to participants in the plans and to the public in any reasonable manner determined by the program administrator.

ITEM 8.Amend rule 781—16.9(12D) as follows:

781—16.9(12D) Substitution or change of beneficiary. Beneficiaries may be changed subject to the rules and regulations of the program administrator. This rule establishes the criteria for substituting one beneficiary for another. Beneficiary changes shall also be subject to the procedures set forth in the applicable program description.

16.9(1) No change.

16.9(2) A participantAn account owner may request that a beneficiary be substituted by submitting the appropriate form to the contractor.

ITEM 9.Amend rule 781—16.10(12D) as follows:

781—16.10(12D) Change of participant or account owner. The participantaccount owner is the owner of the account and, as such, has the exclusive right to cancel the participation agreement or change the designated beneficiary in accordance with these rules and the applicable program description.

16.10(1) A participantAn account owner may transfer the participant’saccount owner’s current ownership rights in an account to another eligible individual, an individual’s legal representative, a trust, an estate, or an organization described in Section 501(c)(3) of the Internal Revenue Code and exempt from taxation under Section 501(a) of the Internal Revenue Code or to a beneficiary. To do so, the participantaccount owner shall complete the appropriate form.

16.10(2) A participantAn account owner may also designate a successor on the participation agreement. A participantAn account owner may change the designated successor by completing the appropriate form. The designated successor shall succeed to the ownership of the account in the event of the death of the participantaccount owner. Upon the death of the participantaccount owner, the successor participantaccount owner must notify the plan by submitting a completed participant agreement form and a certified copy of the death certificate. The change in ownership of the account will become effective for the successor participantaccount owner once this paperwork has been received and processed.

16.10(3) In the event a participant or otheran account owner dies and has not designated a successor to the account, the following criteria will be used.

a.

and b.

No change.

16.10(4) The participantaccount owner may name a successor to the account even though the successor may already have established or may have plans to establish a plan account.

ITEM 10.Amend rule 781—16.11(12D) as follows:

781—16.11(12D) Qualified withdrawals. This rule establishes the procedures for the payment of qualified withdrawals.

16.11(1) The participantaccount owner must initiate a withdrawal for qualified or nonqualified withdrawals. The participantaccount owner must file the appropriate form with the contractor.

16.11(2) Qualified withdrawals will be paid in one of three ways once the form has been received by the contractor:

a.

No change.

b.

Directly to the participantaccount owner.

c.

Directly to the beneficiary at eligible educational institutions only.

16.11(3) No change.

16.11(4) Each qualified withdrawal will be comprised partly of contributions and partly of earnings, based upon the same proportion that contributions and earnings comprise the participant’saccount owner’s account at the time of the withdrawal.

16.11(5) Funds that are distributed to a participantan account owner pursuant to this rule shall be reported to the IRS on a 1099-Q in the tax year in which the withdrawal is made. The participantaccount owner will receive the 1099-Q for any withdrawal paid to the participantaccount owner. The beneficiary will receive the 1099-Q for any withdrawal paid to the beneficiary or institution of higher education. The individual receiving the 1099-Q must determine whether the withdrawal was qualified or nonqualified.

16.11(6) A participantAn account owner may transfer any remaining balance in one account to an existing or new account for another designated beneficiary by completing a new participation agreement with the contractor.

16.11(7) No change.

ITEM 11.Amend rule 781—16.12(12D) as follows:

781—16.12(12D) Nonqualified withdrawals and cancellation. Iowa Code section 12D.5 provides that any participantaccount owner may cancel a participation agreement at will. This rule establishes the criteria for nonqualified withdrawals from an account or for the cancellation of a participation agreement.

16.12(1) A nonqualified withdrawal is one in which the funds are used for a purpose other than the payment of or reimbursement for qualified educational expenses. A participantAn account owner may at any time make a nonqualified withdrawal of a portion of the amount in an account or cancel a participation agreement, without cause, by submitting to the contractor the appropriate form. A nonqualified withdrawal will be paid only to the participantaccount owner.

16.12(2) If the participation agreement is canceled, the participantaccount owner is entitled to the amount in the account, subject to any applicable fees and expenses. The balance shall be mailed or otherwise sent to the participantaccount owner after receipt by the contractor of the appropriate form.

16.12(3) Funds that are distributed to a participantan account owner in a nonqualified withdrawal pursuant to this rule shall be reported to the IRS on a 1099-Q in the tax year in which such withdrawal is made. The participantaccount owner will receive the 1099-Q for any nonqualified withdrawals. The individual receiving the 1099-Q must determine whether the withdrawal was qualified or nonqualified. Nonqualified withdrawals may be subject to state and federal taxes and penalties.

ITEM 12.Rescind rule 781—16.13(12D) and adopt the following new rule in lieu thereof:

781—16.13(12D) Qualified rollover. This rule establishes the procedures for the payment of a qualified rollover.

16.13(1) The account owner must initiate a rollover and must file the appropriate form with the contractor.

16.13(2) Qualified rollovers will be paid in one of the following ways once the form has been received by the contractor:

a.

Directly to the account owner, provided that within 60 days of such distribution, the funds are recontributed from the account owner as described in paragraph 16.13(2)“b,” “c” or “d.”

b.

Directly to another qualified tuition program for the benefit of the designated beneficiary.

c.

Directly to another account designated beneficiary under a qualified tuition program who is a member of the family of the designated beneficiary with respect to which the distribution as made.

d.

Before January 1, 2026, directly to an ABLE account of the designated beneficiary or a member of the family of the designated beneficiary.

e.

Notwithstanding any of the foregoing, any qualified rollover to a Roth IRA under Section 529 must be paid in a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of such designated beneficiary.

16.13(3) Rollovers to a Roth IRA with respect to a designated beneficiary for such taxable year and all prior taxable years may not exceed thresholds set out in Section 529.

16.13(4) Each qualified rollover will be comprised partly of contributions and partly of earnings, based upon the same proportion that contributions and earnings comprise the account owner’s account at the time of the rollover.

16.13(5) Funds that are distributed to an account owner pursuant to this rule shall be reported to the IRS on a 1099-Q in the tax year in which the rollover or withdrawal is made. The beneficiary will receive the 1099-Q for any withdrawal or rollover paid to the beneficiary. The individual receiving the 1099-Q must determine whether the rollover was qualified or nonqualified.

16.13(6) The Iowa state income tax treatment of a qualified rollover from an account shall be as set forth in Iowa Code chapter 422. A rollover that is not a qualified rollover shall be treated as a nonqualified withdrawal.