H.R. 529 (Introduced in House) — 529 and ABLE Account Improvement Act of 2017

Section 1 Short title

This Act may be cited as the “529 and ABLE Account Improvement Act of 2017”.

Sec. 2 Employer contributions to qualified tuition programs and qualified ABLE programs

(a)

In general— Subsection (a) of section 132 of the Internal Revenue Code of 1986 is amended by striking “or” at the end of paragraph (7), by striking the period at the end of paragraph (8) and inserting “, or”, and by adding at the end the following new paragraph:

“(9) qualified tuition program and qualified ABLE program contributions.”

(b)

Qualified tuition program and qualified ABLE program contributions defined— Section 132 of such Code is amended by redesignating subsection (o) as subsection (p) and inserting after subsection (n) the following new subsection:

“(o) Qualified tuition program and qualified ABLE program contributions defined

“(1) In general—For purposes of this section, the term “qualified tuition and qualified ABLE program contributions” means contributions (including matching contributions) made by an employer directly to a qualified tuition program (as described in section 529) or qualified ABLE program (as described in section 529A) designated by an employee if—

“(A) such contribution is made to an account under such program for which the designated beneficiary is the employee or a member of the family of the employee (within the meaning of section 529(e)(2)), and

“(B) such contribution is made in connection with a qualified payroll deduction contribution program established by the employer.

“(2) Qualified payroll deduction contribution program—For purposes of this subsection, the term “qualified payroll deduction contribution program” means a program established by an employer—

“(A) under which employees may elect to make contributions to accounts described in paragraph (1)(A) which reduce the amount of wages received directly by such employee by the amount of such contribution, and

“(B) which is made available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees (as defined in section 414(q)).

“(3) Limitation on exclusion—The amount of qualified tuition and qualified ABLE program contributions which may be excluded from gross income under subsection (a)(9) with respect to any employee shall not exceed $100 in any calendar year.

“(4) Nondiscrimination rule for employer contributions—Subsection (a)(9) shall only apply to contributions provided with respect to a highly compensated employee if such contributions meet the requirements of paragraph (2)(B).

“(5) Inflation adjustment

“(A) In general—In the case of any taxable year beginning in a calendar year after 2017, the $100 amount contained in paragraph (3) shall be increased by an amount equal to—

“(i) such dollar amount, multiplied by

“(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2016” for “calendar year 1992” in subparagraph (B) thereof.

“(B) Rounding—Any increase determined under subparagraph (A) shall be rounded to the nearest multiple of $25.”

(c)

Effective date— The amendments made by this section shall apply to contributions made after December 31, 2016.

Sec. 3 Tax credit for small employer costs of establishing direct payroll deduction into qualified tuition programs and qualified ABLE programs

(a)

In general— Section 45E of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

“(f) Application to programs for payroll deduction contributions to qualified tuition programs and qualified ABLE programs—In the case of a qualified payroll deduction contribution program (as defined in section 132(o)(2)) established by an employer—

“(1) such program shall be treated as an eligible employer plan for purposes of this section,

“(2) this section (including the limitation of subsection (b)) shall be applied separately with respect to such programs and any other eligible employer plans of the employer, and

“(3) subsection (d)(1)(A)(ii) shall be applied by substituting “education” for “retirement-related education”.”

(b)

Clerical amendments—

(1)

The heading for section 45E of such Code is amended by striking “pension”.

(2)

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 45E and inserting the following new item:

(c)

Effective date— The amendments made by this section shall apply to costs paid or incurred in taxable years beginning after the date of the enactment of this Act.

Sec. 4 Exemptions from additional tax for certain distributions from qualified tuition programs

(a)

In general— Section 529(c)(6) of the Internal Revenue Code of 1986 is amended by striking the last sentence and inserting the following:

“(A) a payment or distribution is used (within 90 days of the payment or distribution) to make a payment of interest or principal on a qualified education loan (as defined in section 222(d)(1)) on behalf of the designated beneficiary or a member of the family of such designated beneficiary within the meaning of section 529(e)(2)), or

“(B) the recipient of a payment or distribution makes (within 90 days of the receipt of the payment or distribution) a contribution to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), but only if—

“(i) a deduction for the entire payment or distribution is allowable under section 170, and

“(ii) the total payments and distributions taken into account under this subparagraph with respect to such recipient for any taxable year does not exceed $1,000.”

(b)

Effective date— The amendments made by this section shall apply to distributions after the date of the enactment of this Act.

Sec. 5 Clarification regarding investment direction in qualified tuition programs and qualified ABLE programs

(a)

Investment direction in qualified tuition programs— Paragraph (4) of section 529(b) of the Internal Revenue Code of 1986 is amended by adding at the end the following: “For purposes of this paragraph, rebalancing investments among broad-based investment strategies established under the program shall not be treated as investment direction by a contributor or designated beneficiary unless the specific investments within those broad-based strategies are directed by the contributor or designated beneficiary.”.

(b)

Investment direction in qualified ABLE programs— Paragraph (4) of section 529A(b) of such Code is amended by adding at the end the following: “For purposes of this paragraph, rebalancing investments among broad-based investment strategies established under the program shall not be treated as investment direction by a designated beneficiary unless the specific investments within those broad-based strategies are directed by the designated beneficiary.”.

(c)

Effective date— The amendments made by this section shall apply with respect to calendar years beginning after the date of the enactment of this Act.

Sec. 6 Rollovers between qualified tuition programs and qualified ABLE programs

(a)

Rollovers from qualified tuition programs to qualified ABLE programs— Clause (i) of section 529(c)(3)(C) of the Internal Revenue Code of 1986 is amended by striking “or” at the end of subclause (I), by striking the period at the end of subclause (II) and inserting “, or”, and by adding at the end the following new subclause:

“(III) to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary.”

(b)

Rollovers from qualified ABLE programs to qualified tuition programs— Clause (i) of section 529A(c)(1)(C) of such Code is amended—

(1)

by striking “such payment or distribution, into another” and inserting

“(I) into another”

(2)

by striking the period at the end and inserting “, or”, and

(3)

by adding at the end the following new subclause:

“(II) to a qualified tuition program (as described in section 529) for the benefit of the same designated beneficiary or a member of the family of such designated beneficiary.”

(c)