A bill creating three new state college savings programs received final approval in the Legislature May 24.
LB610, introduced by Omaha Sen. Brett Lindstrom, creates a cash fund administered by the state treasurer to provide incentive payments to employers that make matching contributions to employees’ college savings accounts established under the Nebraska educational savings plan trust.
The trust provides tax-advantaged 529 accounts meant to encourage saving for postsecondary education costs. Contributions grow tax-deferred, and withdrawals are exempt from state and federal taxes as long as they are used for a beneficiary’s qualified higher education expenses such as tuition, books, supplies and room and board.
Beginning in 2022, an employer may apply to the state treasurer to receive the incentive payments. An employer whose application is approved will receive an incentive payment equal to 25 percent of the matching contributions made during the preceding year, up to $2,000 per employee per year.
The state treasurer may approve up to $250,000 in incentive payments each year.
The bill includes provisions of LB547, introduced by Sen. Anna Wishart of Lincoln, under which the state will match contributions to NEST accounts made on behalf of beneficiaries who meet certain income requirements.
Participants are eligible for the program if the beneficiary for whom contributions are made is part of a family whose household income is not more than 250 percent of the federal poverty level.
The state will match the participant’s contribution if the beneficiary’s household income is between 200 and 250 percent of the federal poverty level. The match will equal 200 percent of the participant’s contribution if the beneficiary’s household income is not more than 200 percent of the federal poverty level. Matches are limited to $1,000 per beneficiary per year.
The treasurer may approve up to $250,000 in matching scholarships each year.
LB610 also includes provisions of LB544, sponsored by Elkhorn Sen. Lou Ann Linehan. Those provisions create a program under which each enrolled child will have a NEST account opened for him or her.
Under the program, the treasurer will send a notification explaining the program to the parent or legal guardian of each Nebraska resident born on or after Jan. 1, 2020. The parent or legal guardian may exclude his or her child from the program. Any child not excluded will be deemed enrolled.
Each year the treasurer will distribute the previous year’s investment income from an associated trust fund to the accounts opened during the previous year. The fund will consist of private contributions and any funds transferred or appropriated by the Legislature. The bill prohibits the transfer of state general funds to the trust fund.
If funds from an account opened under the program are not disbursed before the qualified individual reaches age 30, they will be transferred to the trust fund. Disbursed funds may be used only to pay the qualified higher education expenses associated with attending a college or university in Nebraska.
The bill also adds to an existing definition of nonqualified withdrawals the distribution from a NEST account to pay the costs of attending kindergarten through grade 12.
Senators voted 48-0 to pass LB610.