Sec. 54.708. CONTRIBUTIONS AND WITHDRAWALS; PENALTY FOR NONQUALIFIED WITHDRAWAL. (a) Contributions to a savings trust account may be made only in cash or by electronic funds transfer. An employee of the state or a political subdivision of the state may make contributions to a savings trust account by payroll deductions made by the appropriate officer of the state or political subdivision.
(b) An account owner may withdraw all or part of the balance of an account on prior notice as authorized by board rules. The board shall adopt rules governing the determination whether a withdrawal is a qualified withdrawal or a nonqualified withdrawal. The rules may require an account owner requesting to make a qualified withdrawal to provide a certification of qualified higher education expenses.
(c) In the case of a nonqualified withdrawal from an account, an amount equal to 10 percent of the portion of the withdrawal constituting income as determined in accordance with Section 529, Internal Revenue Code of 1986, as amended, shall be withheld as a penalty.
(d) The amount of the penalty prescribed by Subsection (c) may be increased if the board determines that the increased penalty is necessary to constitute a greater than de minimis penalty for purposes of qualifying the plan as a qualified state tuition program under Section 529, Internal Revenue Code of 1986, as amended.
(e) The amount of the penalty prescribed by Subsection (c) may be decreased by board rule if the board determines that:
(1) the amount of the penalty prescribed by Subsection (c) is greater than required to constitute a greater than de minimis penalty for purposes of qualifying the plan as a qualified state tuition program under Section 529, Internal Revenue Code of 1986, as amended; and
(2) the penalty together with other revenue generated under this subchapter is producing more revenue than required to cover the costs of operating the plan and to recover any prior costs not previously recovered.
(f) Penalties collected under this subchapter shall be used to cover costs of administering this subchapter, and any excess shall be treated as earnings of the savings trust accounts in the plan.
Added by Acts 2001, 77th Leg., ch. 1250, Sec. 1, eff. June 15, 2001.
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