P.R. Laws tit. 13, § 30395
(a) Education savings account.—
(1) For purposes of this section, the term “education savings account” shall mean a trust created o organized under the laws of Puerto Rico by an individual for the exclusive benefit of his/her children or relatives up to the third degree of consanguinity or second degree of affinity, or the share of an individual for the exclusive benefit of his/her children or relatives up to the third degree of consanguinity or second degree of affinity, in a trust created or organized under the laws of Puerto Rico.
(2) An individual may contribute the maximum amount allowed in clause (5)(A) of this subsection, without limitation regarding the number of education savings accounts, provided, that the beneficiary of said accounts is described in this subsection.
(3) For purposes of this section, the individual authorized to open an education savings account shall be understood solely as the person having the legal and physical custody of the beneficiary of said account. This individual shall be responsible for informing the parents and other relatives of the beneficiary of the account, as to where it is held, and also shall be responsible in the event that there is an interest in using the account transfer provisions per beneficiary for the same taxable year.
(4) In the case of an employer, he/she shall be allowed to make contributions to the education savings accounts of the beneficiaries of its employees, up to the maximum amount allowed by this section. The contributions of an employer shall be deemed as regular operating expenses of a trade or business and as such, shall be deducted in the year they are made, under the provisions of § 30121 of this title. These contributions shall be included as income of the employees for the year they are made by the employer, as provided in § 30101 of this title, and may be claimed as a deduction by the employee in that same year.
(5) The governing instrument creating the trust shall state that the participants thereof shall be those individuals who, through a contract or application to such effects, accept the provisions of said trust provided the governing instrument creating the trust meets the following requirements:
(A) That, except in the case of a rollover contribution described in paragraph (G) of this clause, in subsection (b)(4) of this section, and subsection (c)(3) of this section, every contribution to the fund shall be in cash and shall not be in excess of five hundred dollars ($500) for each beneficiary for each taxable year. In no event shall it be allowed, for the total contributions received in the education savings account established for each beneficiary, to exceed five hundred dollars ($500) for each taxable year.
(B) That the fund shall be administered by a bank, savings and loan association, savings bank, stock brokerage house, trust company, insurance company, credit and savings cooperative federation, savings and credit cooperative bank, or life insurance cooperative that demonstrates to the satisfaction of the Commissioner of Financial Institutions that the manner in which it shall administer the trust shall be consistent with the requirements of this section. The credit and savings federations of cooperatives and the saving and credit cooperatives referred to in this subparagraph, include both Federal and State cooperatives whose depositors” accounts are secured by the Share and Deposit Insurance Corporation for Cooperative Saving and Credit Unions as provided by Act No. 5 of January 15, 1990, as amended, or by the Federal Government’s National Credit Union Administration insurance, provided by the Federal Credit Union Act (P.L. 86-354.12 USC 1751), as the case may be.
(C) That it satisfies the investment requirements provided in § 30392(a)(3) of this title.
(D) That the total balance of the education savings account created by the individual on behalf of the beneficiary shall be irrevocable and nontransferable by law, except as provided by this section.
(E) That the assets of said trust shall be held in a common trust fund or investment fund to such purposes, but holding a separate accounting for each trust.
(F) That the total balance of the education savings account shall be distributed to the beneficiary after graduating from high school, and not later than the taxable year that the beneficiary attains the age of thirty (30), and is used to defray the cost of the post-secondary education of the beneficiary and is distributed pursuant to the regulations adopted to such effect by the Secretary. Said regulations shall include a definition of the term “post-secondary education,” which shall include, without being construed as a limitation, studies in universities, technical colleges, and vocational schools.
(G) That, if the person for whose benefit the trust is maintained dies before the total balance of the trust is distributed during the period he/she is receiving the same, the total undistributed balance then shall be returned to the person or persons who contributed to the trust. Notwithstanding the foregoing, the total balance of the trust or any part thereof may be transferred in benefit of other members of the same family who qualify under this section, authorizing the transfer of the interest in the account, from one institution to another, in order to obtain higher benefits or yields.
(H) That no part of the trust assets shall be invested in life insurance contracts.
(I) That the ownership of the education savings account belong to the beneficiary for whom it is created. However, the individual who contributed to the same retains the rights stipulated in this Section regarding the return of the sums contributed under the circumstances described in this section.
(J) That the total balance of the beneficiary’s account shall be non-forfeitable in whole or in part.
(K) That the education savings account shall be established by the individual (or his/her authorized representative) who holds the legal custody of the beneficiary for whom said account is created.
(b) For purposes of this section, the term “education savings account” shall also mean an “education savings annuity”. “Education savings annuity” means an annuity or endowment contract as described by regulations promulgated by the Secretary, issued by a life insurance company or life insurance cooperative duly authorized by the Insurance Commissioner of the Government of Puerto Rico to do business in Puerto Rico and that meets the following requirements:
(1) That the contract is not transferable by the taxpayer.
(2) That under the contract:
(A) the premiums shall not be fixed;
(B) the annual premium with regard to any individual does not exceed five hundred dollars ($500) for each beneficiary; and
(C) any refund of premiums be used prior to the close of the calendar year following that year in which the refund for the payment of future premiums or the purchase of additional benefits was made.
(3) That the total balance of the account is distributed to the beneficiary after he/she graduates from high school, and not later than the taxable year in which he/she attains thirty (30) years of age, to be used to defray the cost of post-secondary education of the beneficiary and be distributed pursuant to the regulations approved by the Secretary to such effect. In said regulations, a definition of the term “post-secondary education” shall be included which shall, without it being construed as a limitation, include studies in universities, technical colleges, and vocational schools.
(4) That, if the beneficiary of the trust dies before the total balance of the trust is distributed or while he/she is receiving the same, then the total undistributed balance shall be returned to the person or persons who contributed to the annuity. Notwithstanding the foregoing, the total of the annuity or part thereof, may be transferred for the benefit of other members of the same family who qualify under this section. In addition, the transfer of the account’s interest, from an institution to another, in order to obtain higher benefits or yields is also authorized.
(5) That the total balance of the beneficiary’s account shall be non-forfeitable in whole or in part.
(6) That the total balance of the education savings account created by the individual on behalf of the beneficiary shall be irrevocable and nontransferable by law, except as provided in this section.
(7) That it satisfies the investment requirements provided by § 30392(a)(3) of this title.
(8) The term “educational savings annuity” does not include an annuity contract for any taxable year of the taxpayer during which he/she does not qualify for reason of the application of subsection (d) or for any subsequent taxable year. For purposes of this subsection, an endowment contract shall only be deemed to be that which matures on or before the taxable year in which the individual, on whose behalf the contract is acquired, attains the age of thirty (30), and only that which is created for the exclusive benefit of the individual on whose behalf it is acquired and only if the total sum of the annual premiums corresponding to such annuity does not exceed five hundred dollars ($500) per taxable year per beneficiary.
(c) Distribution of the education savings account assets.—
(1) Taxation of payments or distributions of education savings account.—
(A) The tax treatment of the total or partial distributions of an education savings account shall be determined pursuant to the provisions of § 30392(d)(1) of this title.
(2) Excess contributions returned before the due date for filing.— The provisions of clause (1), shall not apply to the reimbursement of any contribution made during a taxable year to an education savings account up to the amount that said contribution exceeds the amount allowable as a deduction pursuant to § 30135(a)(8) of this title, if:
(A) Such reimbursement is received not later than the day prescribed by law (including any extension period granted) to file the income tax return of said individual for said taxable year;
(B) No deduction whatsoever shall be allowed under § 30135(a)(8) of this title, with respect to said excess contributions, and
(C) such reimbursement is accompanied by the amount of the net income attributable to said excess contribution. Any net income described in this paragraph shall be included as income of the individual for the taxable year in which the contribution was made. The tax treatment of the amount of net income attributable to the excess contribution, shall be according to the provisions of § 30392(d)(1) of this title.
(3) Rollover contribution.— An amount paid or distributed shall be treated as a rollover contribution under this clause if it meets the requirements of paragraphs (A) and (B).
(B) Limitation.— The provisions of this paragraph shall not apply to those amounts described in the above paragraph (A) received by an individual or beneficiary from an education savings account if at any time during the year prior to the day that said amount was received, said individual received any other amount from an education savings account which could not be included in the gross income as a result of the application of this paragraph.
(4) Distribution of annuity contracts.— The provisions in the above clause (1) shall not apply to an annuity contract that meets the requirements of clauses (1), (3), (4), and (5) of subsection (b) of this section and that is distributed from an education savings account.
(d) Tax treatment of education savings accounts.—
(1) Tax exemptions.— Any educational savings account shall be exempt from taxation under this part, unless said account has ceased to be an education savings account in accordance with clause (2) of this subsection.
(2) Loss of exemption and statement of income.— In the following cases, the contributor of the account shall be bound to declare the total balance of said account as income for the taxable year in which the exemption is lost:
(A) In every case in which the beneficiary for whom the account was created dies and the individual or individuals who contributed to the account receive the total of the balance of the account or the undistributed portion thereof which represent the contributions made, and does not use it or transfer it for the benefit of other persons who qualify under this section.
(B) In every case in which the beneficiary for whom the account was created, having attained legal age under the Civil Code, decides not to use the funds for post-secondary education; and the individual or individuals that contributed to the account are returned the total balance or undistributed portion of the contribution made, and do not use it or transfer it in benefit of other persons who qualify under this section.
(3) Effect of pledging an education savings account as collateral.—
(A) If during any taxable year the beneficiary for whose benefit an education savings account is established totally or partially uses the account as collateral for a loan, the portion thus used shall be treated as distributed to said individual.
(B) If during any tax year the beneficiary of an education savings account borrows any amount of money under, or using said contract, it shall cease to be an education savings account for purposes of § 30135(a)(8) of this title, as of the first day of said taxable year. The beneficiary shall include in his/her gross income for said year an amount equal to the fair market value of said contract on the first day of said year.
(4) Withdrawal of contributions and closing of the account.— If at any time during the first seven (7) business days after opening an education savings account, the individual who opened the account determines not to continue it, said person or entity may withdraw any contribution made to the account and close it without the provisions of this section and § 30135(a)(8) of this title being applied.
(e) Reports.—
(1) The trustee of an education savings account created under the terms of subsection (a), and the life insurance company or cooperative that issues an endowment contract or an education savings annuity under the terms of subsection (b), shall make reports to the Secretary and for the individuals for whom the account, endowment or annuity contract is maintained. Such reports shall be made with respect to the contributions, distributions, and such other matters as the Secretary may require by regulations. The reports required pursuant to this subsection shall be filed at such time and in such manner as required by said regulations.
(2) Any trustee or life insurance company or cooperative that, after being notified by the Secretary of any noncompliance of the preceding clause (1), once again fails to comply with the same, shall lose his/her eligibility to act as trustee with respect to any education savings account, from the date of the determination of said noncompliance. The Secretary shall require the transfer of all education savings accounts administered by the disqualified trustee, company or cooperative, to any other trustee who shall be selected by the participant. This change of trustee whereby the funds are directly transferred from the administration of a trustee authorized to accept education savings accounts to another, without there being any distribution whatsoever to the individual on whose behalf the account is maintained, shall not be treated as a payment, distribution or reimbursement.
History —Jan. 31, 2011, No. 1, § 1081.05, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 99.