Bills › 88th General Assembly
Relating to the Iowa educational savings plan trust by permitting the use of funds for certain beneficiaries to attend out-of-state elementary or secondary schools, and including retroactive applicability provisions
Topics:K–12 education
Same legislation: HF 2340
Where it is now
- Done: IntroducedJanuary 16, 2020
- Done: SubcommitteeJanuary 27, 2020
- Done: House committeeFebruary 10, 2020
- Done: Passes the HouseFebruary 26, 2020
- Done: Senate committeeMarch 4, 2020
- Done: Passes the SenateJune 3, 202049–0
- Done: To the GovernorJune 16, 2020
- Done: Signed into lawJune 29, 2020
HF 2340 became law → The same legislation passed as HF 2340, so this version was set aside. Go to HF 2340 What’s a funnel?
What’s in it
AI summary People using Iowa's 529 education savings plan could use their money tax-free to pay for out-of-state elementary or high schools. This change only applies to students who require special education services. The new rule would apply to tax years starting from January 1, 2020.1
Read the official explanation
This bill relates to the Iowa educational savings plan trust (529 plan) by permitting the use of funds for certain beneficiaries to attend out-of-state elementary or secondary schools. Currently, a taxpayer does not pay taxes on money withdrawn from a 529 plan to pay for qualified education expenses to an elementary or secondary school located in this state, among other tax incentives available to a participant in a 529 plan.2. The bill applies retroactively to tax years beginning on or after January 1, 2020.
House subcommittee
Named January 27, 2020. On January 29, 2020 it recommended passage.
Three legislators hear a bill first and recommend what the committee should do; it’s the best time to weigh in. How to take part
Fiscal note
AI summary This bill allows people to use Iowa Educational Savings Plan Trust funds for tuition at out-of-state private schools for students with special needs without paying Iowa individual income tax. This change is projected to reduce net General Fund revenue by $175,000 in fiscal year 2021 through fiscal year 2024, and $145,000 in succeeding fiscal years. The fiscal impact on any local option income surtax for schools will be minor.3
Read the fiscal note
Description
House File 2340 allows funds withdrawn from Iowa Educational Savings Plan Trust accounts (Iowa Accounts) to be used to pay tuition for students requiring special education and attending out-of-state elementary or secondary schools. With the change, withdrawals made for this purpose will not be subject to Iowa individual income tax. The change is effective beginning tax year 2020.
Background
Current Iowa law allows tax-free withdrawals from Iowa Accounts for elementary and secondary tuition expenses, but the educational institution must be located in Iowa. Withdrawals that are made for any purpose other than those specified in the Iowa Code are to be added to the taxpayer’s income for tax purposes in the year of the withdrawal.
Assumptions
- Department of Management school enrollment statistics indicate that 17,041 special needs students are enrolled in Iowa school districts located on the Iowa border.
- From this population of 17,041 it is unknown how many attend or will attend elementary or secondary schools at out-of-state institutions. The Department of Revenue assumes a number equal to 5.0% (851 students) of the identified special needs population will attend out-of-state schools each year and utilize Iowa Account assets for tuition payments.
- Using an average Iowa Account per-family withdrawal statistic provided by the State Treasurer, the Department of Revenue estimates the average tuition withdrawal per student will be $2,920.
- All statistics cited above are assumed to remain constant.
- The Department of Revenue estimates that the average marginal tax rate for the impacted taxpayers will be 7.1% under the current tax system and 5.8% under the contingent income tax system.
- The contingent income tax system is assumed to become effective for tax year 2023.
- Tax year 2020 projected impacts will reduce income tax revenue for FY 2021.
- The fiscal impact on any local option income surtax for schools will be minor.
Fiscal Impact
The expansion of the Iowa Educational Savings Plan Trust individual income tax exemption is projected to reduce net General Fund revenue by $175,000 in FY 2021 through FY 2024, and $145,000 in succeeding fiscal years.
Sources
- Department of Revenue
- Department of Management
- State Treasurer
- Final Fiscal Note – 529 Plan, Out-of-State Private Schools, Special Needs · July 9, 2020 · $175,000
- 529 Plan, Out-of-State Private Schools, Special Needs · February 18, 2020 · $175,000
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88th General Assembly