"
     Section 4. That § 4-5-26 be amended to read as follows:

    6:01:06:01.  Definitions. Words and phrases defined in SDCL chapter 13-63 have the same meaning when used in this chapter. Terms used in this chapter mean:

    (1)  "Cash," currency, bills, and coin in circulation, or converting a negotiable instrument to cash by endorsing and presenting to a financial institution for deposit. An automatic transfer, cashier's check, certified check, money order, payroll deposit, traveler's check, personal check, and wire transfer are cash;

    (2)  "Investment direction," specifying or attempting to specify the particular financial instruments or ownership interests either individually, or within a fund family or other group of financial instruments or ownership interests held as an investment group, into which the contributions or earnings are invested. Investment direction does not mean selecting an initial type of investment program if more than one program is offered;

    (3)  "IRC," section 529 of the Internal Revenue Code as amended on August 1, 2001 January 16, 2002 ;

    (4)  "Program manager," any financial institution selected by the council to act as the depository and manager for the higher education savings plan.

     6:01:06:04.  Withdrawals -- Reporting of nonqualified withdrawals -- Penalties. An account owner may withdraw funds from an account on 30 days notice. The designated beneficiary of an account does not have any authority to withdraw funds from an account unless the account is structured to give the designated beneficiary such right of withdrawal upon matriculation or upon incurring qualified higher education expenses.

    (1)  Withdrawals. Types of withdrawals include:

        (a)  Qualified withdrawals. In order to make a qualified withdrawal, the account holder or the account holder's designee must complete a certification, on a form provided by the program manager, declaring that the funds will be used for the purposes set forth in subdivision SDCL 13-63- 1(13). The form shall include a statement advising the designated beneficiary and account owner to report, in accordance with IRC, refunds received from a higher education institution. In addition to the certification, a withdrawal is deemed qualified only if:

            (i)        The financial institution is provided with a copy of an invoice from the higher education institution or other supporting material; and

            (ii)    The distribution is made only by check payable jointly to the designated beneficiary and a higher education institution as designated by the account owner, or the higher education institution only, or except as expressly permitted by IRC;

        (b)  Withdrawal based on death, disability, or scholarship. A withdrawal may be made as a result of the designated beneficiary's death, disability, or scholarship, if written substantiation is provided. Written substantiation must be from a party other than the designated beneficiary or the account owner that can independently confirm the circumstances of the withdrawal. For a scholarship, the withdrawal may not exceed the amount of the scholarship;

        (c)  Nonqualified or unsubstantiated withdrawals. Any penalty that exceeds zero percent would be considered more than de minimis based on IRC, therefore the council has determined that no penalty will be imposed pursuant to SDCL 13-63-15; and

    (2)  Substantiation procedures. Before treating any withdrawal as qualified, the program manager shall confirm that substantiation is provided for the amount of a withdrawal that the account owner or designated beneficiary asserts is qualified, that the substantiation complies with IRC, and, in the case of a withdrawal to pay qualified higher education expenses, that the substantiated expenditures are of a nature and in amounts that can be treated as qualified higher education expenses. If the program manager determines that substantiation is inadequate, it shall notify the account owner and defer making any distribution with respect to an inadequately substantiated request until proper substantiation is provided or the account owner instructs the financial institution to make the requested distribution.

Nancy Benson