Providing for the establishment of recreation savings accounts and a related individual income tax exemption, and including applicability provisions

The account may be established individually, or jointly with a spouse if the married couple files a joint Iowa income tax return. To establish the account, the bill requires the account holder to submit certain forms to the department of revenue (department) designating the account as a recreation savings account, and identifying the designated beneficiary. These designation forms must be submitted no later than April of the year following the tax year during which the account is opened. An individual may establish more than one account, provided each account has a different designated beneficiary. The account holder may change the designated beneficiary at any time, and may designate himself or herself as the designated beneficiary. In addition, an individual may be the designated beneficiary of more than one account. The designated beneficiary must be a resident of Iowa. Contributions to an account may be made in the form of cash by any person and in any amount. There is no limitation on the amount that may be retained in an account. In addition, the account holder may withdraw funds from an account at any time. Account funds shall not be used to pay expenses, if any, of administering the account, except that fees and charges may be deducted from the account by the financial institution where the account is held. The bill requires an account holder to submit certain reports to the department, including an annual report for the account, a transaction report upon a withdrawal of funds from the account, and a copy of any federal Internal Revenue Service form 1099 or other similar income statement issued for the account. The bill provides protection to financial institutions from being required to perform, and from being responsible or liable for, certain activities as described in the bill with respect to accounts. The bill requires the department to create forms required to be filed by account holders, and to adopt rules to implement and administer the bill, including but not limited to rules identifying transactions which qualify as “eligible recreation costs”. The bill provides two individual income tax incentives relating to the accounts. First, an account holder is allowed to deduct from the individual income tax the amount of contributions made during the year by the account holder to the account holder’s accounts, not to exceed $2,000 per year. Second, the bill exempts from the individual income tax any interest received from the account holder’s accounts. The bill requires an account holder to add to net income for purposes of calculating the individual income tax any amount of a nonqualified withdrawal from an account to the extent it was previously deducted as a contribution. Amounts transferred between different accounts of the same account holder by a person other than the account holder are not considered nonqualified withdrawals. Nonqualified withdrawals required to be added to net income are also subject to a penalty equal to percent of the nonqualified withdrawal, unless the withdrawal was made by reason of the death of the account holder, or was made pursuant to a garnishment, levy, or other order, including an order in bankruptcy following a filing for protection under the federal bankruptcy code. The tax provisions of the bill apply to tax years beginning on or after January 1, 2020.