N.Y. Comp. Codes R. & Regs. tit. 18 § 352.21

Current through Register Vol. 46, No. 45, November 2, 2024

Section 352.21 - Individual development accounts

(a) Establishment. An individual development account may be established by or on behalf of an individual eligible for Family Assistance for the purpose of enabling the individual to accumulate funds for a qualified purpose as specified below.

(b) Qualified purpose. A qualified purpose is one or more of the reasons listed below:

(1) Postsecondary education expenses. Postsecondary educational expenses paid from an individual development account directly to an eligible educational institution.

(2) First home purchase. Qualified acquisition costs with respect to a qualified principal residence for a qualified first-time homebuyer, if paid from an individual development account directly to the persons to whom the amounts are due.

(3) Business capitalization. Amounts paid from an individual development account directly to a business capitalization account which is established in a federally insured financial institution and is restricted to use solely for qualified business capitalization expenses.

(c) Contributions to be made from earned income. An individual may only contribute to an individual development account such amounts as are derived from the disregarded portion of the reported earned income of a recipient of family assistance. Contributions by the individual can only be made while the individual is receiving Family Assistance.

(d) Withdrawal of funds. Funds may only be withdrawn for one of the three reasons given above.

(e) Requirements for establishing accounts. An individual development account established under these regulations and Federal law and regulations is a trust created or organized in the United States and funded through periodic contributions by the establishing individual and which may be matched by or through a qualified entity for one of the purposes described in this Part.

(f) Qualified entity. The term qualified entity means:

(1) an organization which meets the definition of not-for-profit under the Internal Revenue Code of 1986 and is exempt from taxation under section 501(c)(3) of the code; or

(2) a local social services district acting in cooperation with an organization described in paragraph (1) of this subdivision. However, neither the State nor social services districts are required to make or match contributions.

(g) No reduction in benefits. An individual development account is disregarded for the purpose of determining eligibility to receive, or the amount of, any assistance or benefit authorized under any Federal program for the period during which the person maintains or makes contributions into the account.

(h) Definitions. The following definitions are used in this Part.

(1) Eligible educational institution. The term eligible educational institution means the following:

(i) An institution described in section 481(a)(1) or 1201(a) of the Higher Education Act of 1965 as such sections were in effect on August 26, 1996.

(ii) An area vocational education school (as defined in subparagraph [C] or [D] of section 521[4] of the Carl D. Perkins Vocational and Applied Technology Education Act as such sections were in effect on August 26, 1996).

(2) Post-secondary educational expenses. The term post-secondary educational expenses means:

(i) tuition and fees required for the enrollment or attendance of a student at an eligible educational institution; and

(ii) fees, books, supplies, and equipment required for courses of instruction at an eligible educational institution.

(3) Qualified acquisition costs. The term qualified acquisition costs means the costs of acquiring, constructing, or reconstructing a residence. The term includes any usual or reasonable settlement, financing, or other closing costs.

(4) Qualified business. The term qualified business means any business that does not contravene any law or public policy.

(5) Qualified business capitalization expenses. The term qualified business capitalization expenses means qualified expenditures for the capitalization of a qualified business pursuant to a qualified plan.

(6) Qualified expenditures. The term qualified expenditures means expenditures included in a qualified plan, including capital, plant, equipment, working capital, and inventory expenses.

(7) Qualified first-time homebuyer and date of acquisition.

(i) The term qualified first- time home buyer means a taxpayer (and, if married, the taxpayer's spouse) who has no present ownership interest in a principal residence during the three-year period ending on the date of acquisition of the principal residence to which this Part refers.

(ii) The term date of acquisition means the date on which a binding contract to acquire, construct, or reconstruct the principal residence to which this Part refers is entered into.

(8) Qualified plan. The term qualified plan means business plan which:

(i) is approved by a financial institution, or by a nonprofit loan fund having demonstrated fiduciary integrity;

(ii) includes a description of services or goods to be sold, a marketing plan, and projected financial statements; and

(iii) may require the eligible individual to obtain the assistance of an experienced entrepreneurial advisor.

(9) Qualified principal residence. The term qualified principal residence means a principal residence (within the meaning of section 1034 of the Internal Revenue Code of 1986), the qualified acquisition costs of which do not exceed 100 percent of the area purchase price applicable to such residence (determined in accordance with paragraphs [2] and [3] of section 143[e] of the Internal Revenue Code).

(i) Administration. Neither the State nor social services districts are required to administer any individual development account.

(j) Penalties for unauthorized withdrawals. Subject to any inconsistent Federal laws, rules, or regulations, the following penalties will be imposed on the family assistance recipients who withdraw funds from individual development accounts and use them for purposes other than specified above.

(1) The matching funds are subject to the conditions specified by the terms of the trust, if these funds are still available to the qualified entity.

(2) Penalties assessed under the terms of the trust by the qualified entity must be paid, if these funds are still available.

(3) After any penalties are paid, all moneys retained by the recipient, including matching funds, are treated as unearned income in the month the funds are withdrawn.

(4) The account is considered closed and any moneys left in the account after settlement of any penalties under paragraphs (1) and (2) of this subdivision are considered as unearned income as of the date of the unauthorized withdrawal. Any moneys retained in the following month are considered a resource in that month and subject to the resource limitations found in this Part.

(5) The account holder and his/her legal spouse are prohibited from establishing any other individual development accounts in the future.

(k) Other provisions. The following provisions, subject to Federal and State rules, apply.

(1) If the account holder dies, the account may be transferred to a contingent beneficiary subject to the conditions of the trust.

(2) The total of all deposits by the recipient of family assistance paid into an individual development account in a calendar year cannot exceed the amount of the earned income disregarded in calculating the amount of assistance for the recipient's household.

(3) The account holder may, subject to the terms of the trust, transfer available moneys from one individual development account to another without penalty under the family assistance program.

N.Y. Comp. Codes R. & Regs. Tit. 18 § 352.21