HB 707: RELATING TO THE COLLEGE SAVINGS PROGRAM.

A BILL FOR AN ACT

RELATING TO THE COLLEGE SAVINGS PROGRAM.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that in 2002, the State established a college savings program called "TuitionEDGE" pursuant to chapter 256, Hawaii Revised Statutes, and section 529 of the Internal Revenue Code of 1986, as amended.  In 2007, the program was revamped under a new program manager, and re-branded as "HI529 Hawaii's College Savings Program".  The program assists and encourages families to save and invest funds for future higher education expenses.  The investment income earned under the program is exempt from federal and state taxes; provided that the funds are used for qualified higher education expenses.

     The legislature further finds that the federal Tax Cuts and Jobs Act of 2017 expanded 529 plan benefits to include K-12 educational expenses.  However, the State decided to not conform to these specific changes made to the Internal Revenue Code.

     The legislature also finds that establishing a state income tax deduction for accounts under the Hawaii achieving a better life experience savings program, which provides for individual savings accounts for individuals with a disability and their families to save private funds to support the individuals, will promote greater financial security and educational opportunities within the disability community.

     The purpose of this Act is to:

     (1)  Establish a state income tax deduction for contributions made to:

          (A)  Hawaii 529 accounts through the college savings program; and

          (B)  Accounts through the Hawaii achieving a better life experience savings program; and

     (2)  Opt into the amendments of the Internal Revenue Code that authorize 529 benefits to be used for K-12 educational expenses as authorized by federal law.

     SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-     Hawaii's college and ABLE savings program; deduction.  (a)  There shall be allowed as a deduction from gross income the following amounts for contributions made to an account or college account pursuant to chapter 256 and section 529 of the Internal Revenue Code of 1986, as amended, and for contributions made to an account pursuant to chapter 256B:

     (1)  For single filers and married individuals filing separately, a maximum deduction of $5,000 per taxable year; and

     (2)  For married individuals filing jointly, heads of households, and surviving spouses, a maximum deduction of $10,000 per taxable year.

     (b)  Contributions are eligible for the deduction only in the taxable year in which they are made.

     (c)  Contributions withdrawn for non-qualified expenses shall be subject to recapture and included as taxable income for the purposes of income tax, consistent with penalties under federal law.

     (d)  The director of taxation shall prepare forms as may be necessary to claim a tax deduction under this section, may require proof of the claim for the tax deduction, and may adopt rules pursuant to chapter 91."

     SECTION 3.  Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (ii) to read as follows:

     "(ii)  Section 529 (with respect to qualified tuition programs) shall be operative for the purposes of this chapter[, except that sections 529(c)(6), 529(c)(7), and 529(e)(3)(A)(iii) shall not be operative]."

     SECTION 4.  Section 256-2, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§256-2[]]  College savings program established.  There is established the college savings program.  The purpose of this program is to enable families to save for college tuition and other expenses through college accounts.  The program shall provide college accounts to:

     (1)  Enable residents of this State and other states to benefit from the tax incentive provided for qualified state tuition programs under the Internal Revenue Code of 1986, as amended; and

     (2)  Attract students to public and private colleges [and], universities, and elementary or secondary public, private, or religious schools within the State."

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act shall take effect on July 1, 3000, and shall apply to taxable years beginning after December 31, 2024.

Report Title:

College Savings Program; 529 Accounts; Hawaii ABLE Savings Program; Income Tax; Deduction; Internal Revenue Code Conformance

Description:

Establishes a state income tax deduction for contributions made to Hawaii 529 accounts through the college savings program and accounts made through the Hawaii ABLE Savings Program.  Conforms to the amendments of the Internal Revenue Code that authorize 529 benefits to be used for K-12 educational expenses.  Effective 7/1/3000.  (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

relating to the college savings program.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that in 2002, the State established a college savings program called "TuitionEDGE" pursuant to chapter 256, Hawaii Revised Statutes, and section 529 of the Internal Revenue Code of 1986, as amended.  In 2007, the program was revamped under a new program manager, and re-branded as "HI529 Hawaii's College Savings Program".  The program assists and encourages families to save and invest funds for future higher education expenses.  The investment income earned under the program is exempt from federal and state taxes; provided that the funds are used for qualified higher education expenses.

     The legislature further finds that the federal Tax Cuts and Jobs Act of 2017 expanded 529 plan benefits to include K-12 educational expenses.  However, the state decided to not conform to these specific changes made to the Internal Revenue Code.

     The purpose of this Act is to strengthen Hawaii's 529 college savings program by:

     (1)  Establishing a state income tax deduction for contributions made to Hawaii 529 accounts through the college savings program; and

     (2)  Opting into the amendments of the Internal Revenue Code that authorize 529 benefits to be used for K-12 educational expenses as authorized by federal law.

     SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§235-     Section 529 contributions; deduction.  (a)  There shall be allowed as a deduction from gross income the following amounts for contributions made to an account or college account pursuant to chapter 256 and section 529 of the Internal Revenue Code of 1986, as amended:

     (1)  For single filers and married individuals filing separately, a maximum deduction of $5,000 per taxable year; and

     (2)  For married individuals filing jointly, heads of households, and surviving spouses, a maximum deduction of $10,000 per taxable year.

     (b)  Contributions are eligible for the deduction only in the taxable year in which they are made.

     (c)  Contributions withdrawn for non-qualified expenses shall be subject to recapture and included as taxable income for the purposes of income tax, consistent with penalties under federal law.

     (d)  The director of taxation shall prepare forms as may be necessary to claim a tax deduction under this section, may require proof of the claim for the tax deduction, and may adopt rules pursuant to chapter 91."

     SECTION 3.  Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (ii) to read as follows:

     "(ii)  Section 529 (with respect to qualified tuition programs) shall be operative for the purposes of this chapter[, except that sections 529(c)(6), 529(c)(7), and 529(e)(3)(A)(iii) shall not be operative]."

     SECTION 4.  Section 256-2, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§256-2[]]  College savings program established.  There is established the college savings program.  The purpose of this program is to enable families to save for college tuition and other expenses through college accounts.  The program shall provide college accounts to:

     (1)  Enable residents of this State and other states to benefit from the tax incentive provided for qualified state tuition programs under the Internal Revenue Code of 1986, as amended; and

     (2)  Attract students to public and private colleges [and], universities, and elementary or secondary public, private, or religious school within the State."

     SECTION 5.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 6.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2024.

Report Title:

College Savings Program; 529 Accounts; Income Tax; Deduction; Internal Revenue Code Conformance

Description:

Establishes a state income tax deduction for contributions made to Hawaii 529 accounts through the college savings program.  Conforms to the amendments of the Internal Revenue Code that authorize 529 benefits to be used for K-12 educational expenses.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO.  571

Honolulu, Hawaii

                , 2025

RE:   H.B. No. 707

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committees on Higher Education and Education, to which was referred H.B. No. 707 entitled:

"A BILL FOR AN ACT RELATING TO THE COLLEGE SAVINGS PROGRAM,"

beg leave to report as follows:

     The purpose of this measure is to:

     (1)  Establish a state income tax deduction for contributions made to Hawaii 529 accounts through the College Savings Program; and

     (2)  Opt into the amendments of the Internal Revenue Code that authorize 529 benefits to be used for K-12 educational expenses as authorized by federal law.

     Your Committees received testimony in support of this measure from the Hawaiʻi State Council on Developmental Disabilities and seven individuals.  Your Committees received comments on this measure from the Department of Taxation; Department of Budget and Finance; and Tax Foundation of Hawaii.

     Your Committees find that the HI529 Hawaii's College Savings Program assists and encourages families in Hawaii to save and invest funds for future higher education expenses.  Your Committees further find that the investment income earned under the Program is exempt from federal and state taxes; provided that the funds are used for qualified higher education expenses.

     Your Committees note that the federal Tax Cuts and Jobs Act of 2017 expanded 529 plan benefits to include K-12 educational expenses.  This measure will conform state law to these specific changes made to the Internal Revenue Code and strengthen Hawaii's 529 college savings program.

     Your Committees note that establishing a state income tax deduction for accounts under the Hawaii Achieving A Better Life Experience Savings Program, which provides for individual savings accounts for individuals with a disability and their families to save private funds to support the individuals, will also promote greater financial security and educational opportunities within the disability community.

     Your Committees have accordingly amended this measure by:

     (1)  Including accounts through the Hawaii Achieving a Better Life Experience Savings Program under the state income tax deduction established by this measure;

     (2)  Changing the effective date to July 1, 3000, to encourage further discussion; and

     (3)  Making technical, nonsubstantive amendments for the purposes of clarity, consistency, and style.

     As affirmed by the records of votes of the members of your Committees on Higher Education and Education that are attached to this report, your Committees are in accord with the intent and purpose of H.B. No. 707, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 707, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committees on Higher Education and Education,