It is enacted by the General Assembly as follows:

SECTION 1. Section 9-26-4 of the General Laws in Chapter 9-26 entitled "Levy and Sale on Execution" is hereby amended to read as follows:

9-26-4. Property exempt from attachment -- The following goods and property shall be exempt from attachment on any warrant of distress or on any other writ, original, mesne, or judicial:

(1) The necessary wearing apparel of a debtor or of the debtor's family, if he or she has a family.

(2) The working tools of a debtor necessary in the debtor's usual occupation, not exceeding in value the sum of five hundred dollars ($500), and the professional library of any professional person in actual practice.

(3) The household furniture and family stores of a housekeeper in the whole, including beds and bedding, not exceeding in value the sum of one thousand dollars ($1,000).

(4) The bibles, school books, and other books in use in the family, not exceeding in value the sum of three hundred dollars ($300).

(5) The debtor's interest in one lot or right of burial, as the case may be, in any cemetery.

(6) Wages due or accruing to any sailor.

(7) Debts secured by bills of exchange or negotiable promissory notes.

(8) (i) The entire salary or wages of any debtor due or payable from any charitable corporation, or from any person or corporation engaged in the disbursement or administration of any public charitable fund or money, whenever the salaries or wages are to be paid or supplied, directly or indirectly, from any fund or money appropriated or contributed for the relief of the poor or in aid of unemployment, and the debtor is the object of the relief or aid.

(ii) The entire wages or salary of any debtor due or payable from any employer, where the debtor has been the object of relief from any state, federal, or municipal corporation or agency for a period of one year from and after the time when the debtor ceases to be the object of such relief.

(iii) The salary or wages due or payable to any other debtor, not exceeding the sum of fifty dollars ($50.00).

(9) The salary and wages of the wife and the minor children of any debtor.

(10) Such other property, real, personal, or mixed, in possession or actions as is or shall be exempted from attachment and execution, either permanently or temporarily, by general or special acts, charters of incorporation, or by the policy of the law.

(11) An individual retirement account or individual retirement annuity as defined in sections 408 and 408A of the Internal Revenue Code, 26 U.S.C. sections 408 and 408A, and the payments or distributions from such an account or annuity, except that this exemption does not apply to any of the following:

(i) An order of a court pursuant to a judgment of divorce or separate maintenance.

(ii) An order of a court concerning child support.

(iii) Contributions to an individual retirement account or premiums on an individual retirement annuity, including the earnings or benefits from those contributions or premiums, that constitute an excess contribution within the meaning of Section 4973 of the Internal Revenue Code [26 U.S.C. section 4973_.

(12) (i) The right or interest of a person in an annuity, pension, profit sharing, or other retirement plan protected by the Employee Retirement Income Security Act of 1974, Public Law 93-406, 29 U.S.C. section 1001 et seq. This exemption shall also apply to the operation of the Federal Bankruptcy Code, as permitted by Section 522(d)(10)(E) of Title 11 of the United States Code, 11 U.S.C. section 522(d)(10)(E). This exemption shall not apply to the right or interest of a person in an annuity, pension, profit sharing, or other retirement plan to the extent that that right or interest is subject to any of the following:

(A) (i) An order of the court pursuant to a judgment of divorce or separated maintenance.

(ii) (B) An order of a court concerning child support.

This exemption shall not apply to contributions to and the earnings of any of the retirement plans enumerated in this subdivision that are not qualified retirement plans as defined by Section 401 of the Internal Revenue Code, 26 U.S.C. section 401.

SECTION 2. Sections 16-57-3, 16-57-6.1, 16-57-6.2 and 16-57-6.3 of the General Laws in Chapter 16-57 entitled "Higher Education Assistance Authority" are hereby amended to read as follows:

16-57-3. Definitions -- As used in this chapter, the following words and terms shall have the following meanings unless the context shall indicate another or different meaning or intent:

(1) "Authority" means the governmental agency and public instrumentality authorized, created, and established pursuant to section 16-57-4.

(2) "Secretary" means the United States secretary of education.

(3) "Eligible borrower" means a student, or the parent of a student, who is either a resident of the state or, who, under rules promulgated by the authority, is otherwise qualified to make an eligible loan.

(4) "Eligible institution", subject to further particular or more restrictive definition by regulation of the authority, means: (i) an institution of higher learning, (ii) a vocational school, or (iii) with respect to students who are nationals of the United States, an institution outside the United States which is comparable to an institution of higher education or to a vocational school and which has been approved by the authority and by the commissioner for purposes of the guaranteed student loan program.

(5) "Eligible loan" means a loan to a student or to the parent of a student insured or guaranteed by the commissioner, by the authority, or by any other governmental or private agency, corporation, or organization having a reinsurance or guaranty agreement with the commissioner applicable to the student loan.

(6) "Guaranteed student loan program" means the program of federal student loan insurance and reinsurance administered by the commissioner.

(7) "Lender", subject to further particular or more restrictive definition by regulation of the authority, means any governmental or private agency, corporation, organization, or institution designated as an "eligible lender" by federal statute, regulation, or administrative ruling for the purposes of the guaranteed student loan program.

(8) "State" means the state of Rhode Island and Providence Plantations.

(9) "Student", as used with reference to the guaranteed student loan program and the parent loan program, means an individual who, under rules promulgated by the authority, is enrolled or accepted for enrollment at an eligible institution and who is making suitable progress in his or her education toward obtaining a degree or other appropriate certification in accordance with standards acceptable to the authority.

(10) "Participant" means an individual, firm or corporation, trust or other "person" within the meaning of section 529 of the Internal Revenue Code, who makes contributions to the tuition savings program established pursuant to section 16-57-6.1 for purposes of paying qualified higher education expenses on behalf of a beneficiary.

(11) "Participating institution" shall mean an institution for higher education which agrees to participate in a savings program or prepaid tuition program established pursuant to this chapter.

(12) "Prepaid tuition program" means a program administered by the authority, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, which provides a means for qualified students, parents and others responsible for paying the costs of education to fix all or a portion of the direct cost of attendance at participating institutions in one (1) or more future years.

(13) "Program" shall mean the tuition savings program established pursuant to section 16-57-6.1.

(14) "Qualified higher education expenses" means the costs of tuition, fees, books, supplies and equipment required for enrollment or attendance at an institution of higher education, and other education costs as may from time to time be defined by federal law.

(15) "Tuition savings program" or "Savings program" means a program approved and administered by the authority, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, designed to facilitate and encourage savings by or on behalf of students, future students and parents for the purpose of paying the costs of attending institutions of higher education.

(16) "Commissioner of higher education" means the commissioner appointed by the Rhode Island Board of Governors for Higher Education or his or her designee.

16-57-6.1. Tuition savings program -- (a) The authority shall, in conjunction with the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education, establish in such form as it deems appropriate, a tuition savings program to allow persons to save monies for the sole purpose of meeting qualified higher education expenses.

(b) All moneys received in connection with the tuition savings program shall be segregated from all other funds of the authority into two (2) funds, a program fund and an administrative fund. No more than two percent (2%) of moneys in a the program fund may be transferred annually to an the administrative fund for the purpose of paying operating costs of administering the tuition savings program. Moneys accrued by participants in a the program fund may be used for payments to an eligible institution.

(c) The state investment commission shall invest moneys within the program fund in any investments which are authorized by the general laws, including equities and fixed income securities. The composition of investments shall be determined by the state investment commission, subject to the approval of the authority. The state investment commission shall consider the recommendations of the commissioner of higher education and the executive director of the Rhode Island Student Loan Authority with respect to the appropriate composition of investments within the program fund.

(d) A participant may at any time withdraw funds from the participant's account in the tuition savings program once the participant's account has been in effect for two (2) years. The participant shall be entitled to the return of the principal amount of all contributions made by participants plus actual investment earnings or minus actual investment losses on the contributions in an amount up to the value of the account at the time the withdrawal is implemented, less an such administrative fee to as may be levied by the authority which shall be sufficient to reasonably compensate the authority for its administrative costs incident to the participant's account in connection with the withdrawal.

(e) A participant may withdraw funds from the tuition savings program prior to the expiration of two (2) years from the effective date of the participant's account and receive one hundred percent (100%) of the principal amount of all contributions made by the participant; provided however that investment earnings which have been credited to the participant's account shall be retained in the program to pay for administration expenses and provided further that investment losses shall be deducted from the principal amount of the contributions. In addition, an administrative fee may be levied by the authority which shall be sufficient to reasonably compensate the authority for its administrative costs in connection with the participant's account.

(f) (e) Notwithstanding any of the foregoing provisions, upon the occurrence of any of the following circumstances, no administrative fee may be levied by the authority in the event that a participant requests withdrawal of funds from the participant's account in the tuition savings program on account of, and within the meaning of section 529 of the Internal Revenue Code:

(i) The Death death of the beneficiary of the account;

(ii) Permanent The disability or mental incapacity of the beneficiary; or

(iii) A Scholarship scholarship, allowance or payment received by the beneficiary to the extent that the amount of the refund does not exceed the amount of the scholarship, allowance or payment in accordance with federal law.

(f) In the event that a participant requests a withdrawal or refund of funds contributed to from an account in the tuition savings program for any cause other than those listed above, then (i) a withdrawal used for qualified higher education expenses of the beneficiary of the account or (ii) for a reason referred to in subdivision (i), (ii) or (iii) of subsection (e) of this section, the authority shall impose on the participant a more than de minimus penalty on the earnings portion of the withdrawal in accordance with federal law Section 529 of the Internal Revenue Code; provided that no penalty shall be imposed with respect to any such withdrawal, or any other withdrawal, from any account in the tuition savings plan to which the tax made applicable by section 529 of the Internal Revenue Code is effective.

(g) Resources of the authority and the Rhode Island Student Loan Authority shall be employed to effect implementation of the tuition savings program.

16-57-6.2. Repayment and ownership of contributions and investment earnings and losses -- Transfer of ownership rights - 16-57-6.2. Ownership of assets - Transfer of ownership rights. -- (1) (a) The participant retains ownership of all contributions made to assets properly allocated to an account maintained for the participant in the tuition savings program up to the date of withdrawal or distribution to pay qualified higher education expenses for the beneficiary thereof from the program.

(b) All earnings derived from the investment of the contributions made by the participant assets of the tuition savings program shall be considered to be held in trust. for the benefit of the beneficiary; however, as As required by the Internal Revenue Code, no investment earnings interest in the tuition savings program or any portion thereof may be used as security for a loan.

(c) The institution of higher education shall own payments made for qualified higher education expenses at the time each payment is made to the institution.

(d) (c) Any amounts which may be paid to an administration the administrative fund of the tuition savings program which are not listed in this section are owned by the authority. Such amounts may be included include, but are not limited to, appropriation of appropriated state funds.

(2) If a beneficiary graduated from an institution of higher education and a balance remains in the participant's account, then the authority shall pay the balance to the participant.

(3) (d) A participant may transfer ownership rights in the tuition savings program to another eligible participant or designate a new beneficiary insofar as permitted by section 529 of the Internal Revenue Code under such conditions as the authority deems appropriate.

16-57-6.3. Tax exempt earnings -- (a) For state income tax purposes, annual earnings on of the tuition savings program and the prepaid tuition program shall be exempt from tax to the program, and shall not be includible in the gross Rhode Island income of either beneficiaries or participants therein until such time as distributions are made. withdrawn or distributed therefrom, and then in accordance with chapter 44-30. At that time, annual earnings of the tuition savings program shall be included in the gross income of the beneficiary. If a participation agreement is cancelled, the amount distributed to the participant shall be income for Rhode Island state tax purposes in the year of such cancellation to the extent such distribution exceeds contributions made by such participant.

(b) The tax administrator, in consultation with the authority and the executive director of the Rhode Island Student Loan Authority, and the commissioner of higher education may adopt rules and regulations necessary to monitor, and implement and administer the Rhode Island personal income tax provisions referred to in subsection (a) relating to the property of the program and the income of participants and beneficiaries of the program. this chapter. Such regulations shall provide for each taxable year for the timely submission to the tax administrator by the program manager of the tuition savings program of such information in such form as the tax administrator shall prescribe concerning contributions to, and withdrawals including transfers and rollovers from, the tuition savings program during such year.

SECTION 3. Sections 44-30-12, 44-30-17, 44-30-32 and 44-30-36 of the General Laws in Chapter 44-30 entitled "Personal Income Tax" are hereby amended to read as follows:

44-30-12. Rhode Island income of a resident individual -- (a) General. - The Rhode Island income of a resident individual means his or her adjusted gross income for federal income tax purposes, with the modifications specified in this section.

(b) Modifications increasing federal adjusted gross income. - There shall be added to federal adjusted gross income:

(1) Interest income on obligations of any state, or its political subdivisions, other than Rhode Island or its political subdivisions;

(2) Interest or dividend income on obligations or securities of any authority, commission, or instrumentality of the United States, but not of Rhode Island or its political subdivisions, to the extent exempted by the laws of the United States from federal income tax but not from state income taxes.

(3) The modification described in section 44-30-25(g).

(c) Modifications reducing federal adjusted gross income. - There shall be subtracted from federal adjusted gross income: (1) any interest income on obligations of the United States and its possessions to the extent includible in gross income for federal income tax purposes, and any interest or dividend income on obligations, or securities of any authority, commission, or instrumentality of the United States to the extent includible in gross income for federal income tax purposes but exempt from state income taxes under the laws of the United States; provided that the amount to be subtracted shall in any case be reduced by any interest on indebtedness incurred or continued to purchase or carry obligations or securities the income of which is exempt from Rhode Island personal income tax, to the extent the interest has been deducted in determining federal adjusted gross income or taxable income; and

(2) the a modification described in section 44-30-25(f) or section 44-30-1.1(C)(1) . ; and

(d) Modification for Rhode Island fiduciary adjustment. - There shall be added to or subtracted from federal adjusted gross income (as the case may be) the taxpayer's share, as beneficiary of an estate or trust, of the Rhode Island fiduciary adjustment determined under section 44-30-17.

(e) Partners. - The amounts of modifications required to be made under this section by a partner, which relate to items of income or deduction of a partnership, shall be determined under section 44-30-15.

44-30-17. Share of a resident estate, trust, or beneficiary in Rhode Island fiduciary adjustment -- (a) General. - An adjustment shall be made in determining Rhode Island income of a resident estate or trust under section 44-30-16, or Rhode Island income of a resident beneficiary of any estate or trust under subsection (d) of section 44-30-12, in the amount of the share of each in the Rhode Island fiduciary adjustment as determined in this section.

(b) Definition. - The Rhode Island fiduciary adjustment shall be the net amount of the modifications described in section 44-30-12 (excluding subsection (c)(3) thereof) and including subsection (d) thereof if the estate or trust is a beneficiary of another estate or trust), which relates to items of income or deduction of an estate or trust.

(c) Shares of Rhode Island fiduciary adjustment. - (1) The respective shares of an estate or trust and its beneficiaries (including, solely for the purpose of this allocation, nonresident beneficiaries) in the Rhode Island fiduciary adjustment shall be in proportion to their respective shares of federal distributable net income of the estate or trust.

(2) If the estate or trust has no federal distributable net income for the taxable years, the share of each beneficiary in the Rhode Island fiduciary adjustment shall be in proportion to his or her share of the estate or trust income for that year, under the law governing the instrument, which is required to be distributed currently and any other amounts of that income distributed in that year. Any balance of the Rhode Island fiduciary adjustment shall be allocated to the estate or trust.

(d) Alternate attribution of modifications. - The tax administrator may by regulation authorize the use of such other methods of determining to whom the items comprising the fiduciary adjustment shall be attributed, as may be appropriate and equitable, on such terms and conditions as the tax administrator may require.

44-30-32. Rhode Island income of a nonresident individual -- (a) General. - The Rhode Island income of a nonresident individual shall be the sum of the following:

(1) The net amount of items of income and deduction entering into his or her federal adjusted gross income derived from or connected with Rhode Island sources, including:

(i) His or her distributive share of partnership income and deductions, determined under section 44-30-34; and

(ii) His or her share of estate or trust income and deductions, determined under section 44-30-36; and

(2) The portion of the modifications described in subsections (b) and (c) of section 44-30-12 which relate to income derived from Rhode Island sources, including any modifications attributable to the individual as a partner.

(b) Income and deductions from Rhode Island sources. - (1) Items of income and deduction derived from or connected with Rhode Island sources shall be those items attributable to:

(i) The ownership or disposition of any interest in real or tangible personal property in this state; or

(ii) A business, trade, profession, or occupation carried on in this state.

(iii) Gambling winnings from the state lottery and gambling winnings from pari-mutuel betting events conducted or operated by a licensee within this state.

(2) Income from intangible personal property, including annuities, dividends, interest, and gains from the disposition of intangible personal property, shall constitute income derived from Rhode Island sources only to the extent that the intangible personal property is employed in a business, trade, profession, or occupation carried on in this state.

(3) Deductions with respect to capital losses, net long-term capital gains, and net operating losses shall be based solely on income and deductions derived from or connected with Rhode Island sources, under regulations of the tax administrator, but otherwise shall be determined in the same manner as the corresponding federal deductions.

(c) Income and deductions partly from Rhode Island sources. - If a business, trade, profession, or occupation is carried on partly within and partly without this state, the items of income and deduction derived from or connected with Rhode Island sources shall be determined by apportionment and allocation under regulations to be promulgated by the tax administrator.

(d) Military pay. - Compensation paid by the United States for service in the armed forces of the United States, performed by an individual not domiciled in this state, shall not constitute income derived from Rhode Island sources.

44-30-36. Share of a nonresident estate, trust, or beneficiary in income from Rhode Island sources -- (a) General. - The share of a nonresident estate or trust under section 44-30-35(a)(1) and the share of a nonresident beneficiary of any estate or trust under section 44-30-32(a) in estate or trust income and deduction from Rhode Island sources shall be determined as follows:

(1) Items of distributable net income from Rhode Island sources. - There shall be determined the items of income and deduction, derived from or connected with Rhode Island sources, which enter into the definition of "federal distributable net income" of the estate or trust for the taxable year, including the items from another estate or trust of which the first estate or trust is a beneficiary. The determination of source shall be made under regulations of the tax administrator in keeping with the applicable rules of section 44-30-32 as if the estate or trust were a nonresident individual.

(2) Addition or subtraction of modifications. - There shall be added to or subtracted, as the case may be, the modifications described in section 44-30-12(b) and (c) (excluding subsection (c)(3) thereof) to the extent relating to items of income and deduction, derived from or connected with Rhode Island sources, which enter into the definition of "federal distributable net income", including the items from another estate or trust of which the first estate or trust is a beneficiary. No modification shall be made under this subsection which has the effect of duplicating an item already reflected in the definition of "federal distributable net income".

(3) Allocation among estate or trust and beneficiaries. - (i) The amounts determined under subdivisions (1) and (2) shall be allocated among the estate or trust and its beneficiaries, including, solely for the purpose of this allocation, resident beneficiaries, in proportion to their respective shares of federal distributable net income.

(ii) The amounts so allocated shall have the same character as for federal income tax purposes. Where an item entering into the computation of the amounts is not characterized for federal income tax purposes, it shall have the same character as if realized directly from the source from which realized by the estate or trust, or incurred in the same manner as incurred by the estate or trust.

(b) Alternate methods of determining shares. - (1) If the estate or trust has no federal distributable net income for the taxable year, the share of each beneficiary, including, solely for the purpose of this allocation, resident beneficiaries, in the net amount determined under subdivisions (1) and (2) of subsection (a) shall be in proportion to his share of the estate of trust income for that year, under local law or the governing instrument, which is required to be distributed currently and any other amounts of the income distributed in that year. Any balance of the net amount shall be allocated to the estate or trust.

(2) The tax administrator may by regulation authorize the use of such other methods of determining the respective shares of the beneficiaries and of the estate or trust in its income derived from Rhode Island sources, and the modification related thereto, as may be appropriate and equitable, on such terms and conditions as the tax administrator may require.

SECTION 4. This act shall take effect on passage; provided, that the amendments made to sections 16-57-3(10), 16-57-6.1, 16-57-6.2 and 16-57-6.3 shall be effective January 1, 2001 and Section 3 of this act shall be effective for taxable years beginning on or after January 1, 2002.