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10  AN ACT concerning the individual development account act; prescribing
11    guidelines and limitations; exempting certain earnings from Kansas
12    income tax; amending K.S.A. 1996 Supp. 79-32,117h and repealing the
13    existing section.
14
15  Be it enacted by the Legislature of the State of Kansas:
16    Section 1.  K.S.A. 1996 Supp. 79-32,117h is hereby amended to read
17  as follows: 79-32,117h. (a) This section may be cited as the individual
18  development account act.
19    (b)  For the purposes of this section:
20    (1)  ``Account holder'' means the individual on whose behalf the in-
21  dividual development account is established.
22    (2)  ``Dependent child'' means any person under the age of 21 years
23  or any person who is legally entitled or subject to a court order for the
24  provision of proper and necessary subsistence and education, and who is
25  not emancipated, married or a member of the armed forces of the United
26  States.
27    (3)  ``Individual development account'' means a custodial account for
28  a trust established or organized to pay for education expenses of the
29  account holder for a qualified purpose.
30    (4)  ``Custodian'' means a chartered state bank or trust company au-
31  thorized to act as a fiduciary, a national banking association or savings and
32  loan association authorized to act as a fiduciary, or an insurance company
33  and shall include any other qualified financial custodian as defined by
34  rules and regulations adopted by the secretary of revenue.
35    (5)  ``Qualified purpose'' means medical expenses or postsecondary ed-
36  ucational expenses, first home purchase or business capitalization, as de-
37  fined by subsection (h)(1)(B) of section 404 of the federal social security
38  act (42 U.S.C. 604).
39    (6)  ``Earned income'' means earned income as defined by subsection
40    (d)(2) of section 911 of the federal internal revenue code of 1986.
41    (7)  ``Qualified entity'' means a qualified entity as defined by subsec-
42  tion (h)(3)(B) of section 404 of the federal social security act (42 U.S.C.
43  604).
HB 2330--Am.
                                     

 1    (c) (1)  For taxable years beginning after December 31, 1993, a res-
 2  ident of this state with a Kansas adjusted gross income of not more
 3  than $25,000 shall be allowed to deposit contributions to an individual
 4  development account. Except as provided in subsection (c)(8), the
 5  amount of deposit for the first taxable year subsequent to the effective
 6  date of this act shall not exceed:
 7    (A)  $2,000 for the account holder; or
 8    (B)  $2,000 for the account holder and $1,000 for each dependent
 9  child of the account holder.
10    (2)  The maximum allowable amount of deposit for subsequent years
11  shall be increased annually by a percentage equal to the previous year's
12  increase in the consumer price index as published annually as soon after
13  December 31 each year as possible by the secretary of state in the Kansas
14  register. As used in this paragraph (2), ``consumer price index'' means the
15  twelve-month average of the consumer price index for all urban consum-
16  ers United States city average which is published by the United States
17  department of labor.
18    (3)  Income earned on an individual development account shall be
19  exempt from state income taxation under the Kansas income tax act.
20    (4)  Upon agreement between an employer and employee, an em-
21  ployer may contribute to the employee's individual development account,
22  subject to the restrictions in subsection (6)(A) An individual may only
23  contribute to an individual development account such amounts as are
24  derived from earned income. Amounts contributed to an individual de-
25  velopment account by an individual may be matched by amounts con-
26  tributed by any qualified entity to the individual development account.
27    (5)  The individual development account shall be established as a cus-
28  todial account and be placed with a custodian.
29    (6)  Individual development account funds may be withdrawn by the
30  account holder at any time for any purpose, subject to the following re-
31  strictions and penalties:
32    (A)  There shall be a distribution penalty for withdrawal of individual
33  development account funds by the account holder; such penalty shall be
34  25% of the amount of interest earned as of the date of withdrawal on the
35  account and shall be remitted by the custodian to the state and disposed
36  of in the same manner as other penalties imposed under the Kansas in-
37  come tax act; and, upon such withdrawal, the interest earned during the
38  tax year in which withdrawal occurs shall be subject to state income tax-
39  ation; and
40    (B)  withdrawals shall be permitted without penalty for the purposes
41  for which the individual development account was created expenditure
42  authorized under subsection (h) of section 404 of the federal social security
43  act (42 U.S.C. 604) or authorized by federal regulations adopted under
HB 2330--Am.
                                     

 1  subsection (h)(1)(D) of section 404 of federal social security act (42 U.S.C.
 2  604).
 3    (7)  Upon the death of the account holder, the account principal, as
 4  well as any interest accumulated thereon, shall be distributed to the de-
 5  cedent's estate and taxed as part of the estate.
 6    (8)  There shall be no limit on the amount of earned income of a
 7  dependent child, who is a recipient of aid to families with dependent
 8  children, deposited in an individual development account of such de-
 9  pendent child that was created or organized to pay for educational ex-
10  penses of such dependent child.
11    Sec. 2.  K.S.A. 1996 Supp. 79-32,117h is hereby repealed.
12    Sec. 3.  This act shall take effect and be in force from and after its
13  publication in the statute book.