Renames such educational IRAs as Coverdell education savings accounts.
Excludes from gross income: (1) employer contributions to such accounts on behalf of an employee or employee family member; and (2) account distributions.
[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 306 Introduced in Senate (IS)]
107th CONGRESS
1st Session
S. 306
To amend the Internal Revenue Code of 1986 to expand the use of
education individual retirement accounts, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
February 13, 2001
Mr. Torricelli (for himself, Mr. Hutchinson, Mr. Lieberman, Mr.
Sessions, Mr. Breaux, Mr. Frist, Mr. Miller, Mr. Enzi, Mr. Gregg, Mr.
Thompson, Mr. Hagel, Mr. Brownback, Mr. Santorum, Mr. Kyl, Mr.
Voinovich, Mr. DeWine, and Mr. Cleland) introduced the following bill;
which was read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to expand the use of
education individual retirement accounts, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) Short Title.--This Act may be cited as the ``Coverdell
Education Savings Accounts Act of 2001''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
SEC. 2. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) Tax-Free Expenditures for Elementary and Secondary School
Expenses.--
(1) In general.--Section 530(b)(2) (defining qualified
higher education expenses) is amended to read as follows:
``(2) Qualified education expenses.--
``(A) In general.--The term `qualified education
expenses' means--
``(i) qualified higher education expenses
(as defined in section 529(e)(3)), and
``(ii) qualified elementary and secondary
education expenses (as defined in paragraph
(4)).
``(B) Qualified state tuition programs.--Such term
shall include any contribution to a qualified State
tuition program (as defined in section 529(b)) on
behalf of the designated beneficiary (as defined in
section 529(e)(1)); but there shall be no increase in
the investment in the contract for purposes of applying
section 72 by reason of any portion of such
contribution which is not includible in gross income by
reason of subsection (d)(2).''.
(2) Qualified elementary and secondary education
expenses.--Section 530(b) (relating to definitions and special
rules) is amended by adding at the end the following new
paragraph:
``(4) Qualified elementary and secondary education
expenses.--
``(A) In general.--The term `qualified elementary
and secondary education expenses' means--
``(i) expenses for tuition, fees, academic
tutoring, special needs services, books,
supplies, computer equipment (including related
software and services), and other equipment
which are incurred in connection with the
enrollment or attendance of the designated
beneficiary of the trust as an elementary or
secondary school student at a public, private,
or religious school, and
``(ii) expenses for room and board,
uniforms, transportation, and supplementary
items and services (including extended day
programs) which are required or provided by a
public, private, or religious school in
connection with such enrollment or attendance.
``(B) School.--The term `school' means any school
which provides elementary education or secondary
education (kindergarten through grade 12), as
determined under State law.''.
(3) Conforming amendments.--Section 530 is amended--
(A) by striking ``higher'' each place it appears in
subsections (b)(1) and (d)(2), and
(B) by striking ``higher'' in the heading for
subsection (d)(2).
(b) Maximum Annual Contributions.--
(1) In general.--Section 530(b)(1)(A)(iii) (defining
education individual retirement account) is amended by striking
``$500'' and inserting ``the applicable dollar amount for the
calendar year in which such taxable year begins''.
(2) Applicable dollar amount.--Section 530(b) is amended by
adding at the end the following new paragraph:
``(4) Applicable dollar amount.--
``(A) In general.--For purposes of paragraph
(1)(A)(iii), the applicable dollar amount is $2,000.
``(B) Inflation adjustment.--
``(i) In general.--In the case of any
taxable year beginning after 2002, the dollar
amount referred to in subparagraph (A) shall be
increased by an amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section
(1)(f)(3) for the calendar year in
which the taxable year begins, by
substituting `2001' for `1992'.
``(ii) Rounding.--If any amount as adjusted
under clause (i) is not a multiple of $50, such
amount shall be rounded to the nearest multiple
of $50.''.
(3) Conforming amendment.--Section 4973(e)(1)(A) is amended
by striking ``$500'' and inserting ``the applicable dollar
amount for the calendar year in which such taxable year
begins''.
(4) Elimination of the marriage penalty in the reduction in
permitted contributions.--Section 530(c)(1) (relating to
reduction in permitted contributions based on adjusted gross
income) is amended--
(A) by striking ``$150,000'' in subparagraph
(A)(ii) and inserting ``$190,000'', and
(B) by striking ``$10,000'' in subparagraph (B) and
inserting ``$30,000''.
(c) Waiver of Age Limitations for Children With Special Needs.--
Section 530(b)(1) (defining education individual retirement account) is
amended by adding at the end the following flush sentence:
``The age limitations in subparagraphs (A)(ii) and (E) and
paragraphs (5) and (6) of subsection (d) shall not apply to any
designated beneficiary with special needs (as determined under
regulations prescribed by the Secretary).''.
(d) Entities Permitted To Contribute to Accounts.--Section
530(c)(1) (relating to reduction in permitted contributions based on
adjusted gross income) is amended by striking ``The maximum amount
which a contributor'' and inserting ``In the case of a contributor who
is an individual, the maximum amount the contributor''.
(e) Time When Contributions Deemed Made.--
(1) In general.--Section 530(b) (relating to definitions
and special rules), as amended by subsection (b)(2), is amended
by adding at the end the following new paragraph:
``(5) Time when contributions deemed made.--An individual
shall be deemed to have made a contribution to an education
individual retirement account on the last day of the preceding
taxable year if the contribution is made on account of such
taxable year and is made not later than the time prescribed by
law for filing the return for such taxable year (not including
extensions thereof).''.
(2) Extension of time to return excess contributions.--
Subparagraph (C) of section 530(d)(4) (relating to additional
tax for distributions not used for educational expenses) is
amended--
(A) by striking clause (i) and inserting the
following new clause:
``(i) such distribution is made before the
1st day of the 6th month of the taxable year
following the taxable year, and'', and
(B) by striking ``due date of return'' in the
heading and inserting ``certain date''.
(f) Coordination With Hope and Lifetime Learning Credits and
Qualified Tuition Programs.--
(1) In general.--Section 530(d)(2)(C) is amended to read as
follows:
``(C) Coordination with hope and lifetime learning
credits and qualified tuition programs.--For purposes
of subparagraph (A).
``(i) Credit coordination.--The total
amount of qualified higher education expenses
with respect to an individual for the taxable
year shall be reduced--
``(I) as provided in section
25A(g)(2), and
``(II) by the amount of such
expenses which were taken into account
in determining the credit allowed to
the taxpayer or any other person under
section 25A.
``(ii) Coordination with qualified tuition
programs.--If, with respect to an individual
for any taxable year--
``(I) the aggregate distributions
during such year to which subparagraph
(A) and section 529(c)(3)(B) apply,
exceed
``(II) the total amount of
qualified higher education expenses
(after the application of clause (i))
for such year,
the taxpayer shall allocate such expenses among
such distributions for purposes of determining
the amount of the exclusion under subparagraph
(A) and section 529(c)(3)(B).''.
(2) Conforming amendments.--
(A) Subsection (e) of section 25A is amended to
read as follows:
``(e) Election Not To Have Section Apply.--A taxpayer may elect not
to have this section apply with respect to the qualified tuition and
related expenses of an individual for any taxable year.''.
(B) Section 135(d)(2)(A) is amended by striking
``allowable'' and inserting ``allowed''.
(C) Section 530(d)(2)(D) is amended--
(i) by striking ``or credit'', and
(ii) by striking ``credit or'' in the
heading.
(D) Section 4973(e)(1) is amended by adding ``and''
at the end of subparagraph (A), by striking
subparagraph (B), and by redesignating subparagraph (C)
as subparagraph (B).
(g) Renaming Education Individual Retirement Accounts as Coverdell
Education Savings Accounts.--
(1) In general.--
(A) Section 530 (as amended by the preceding
provisions of this section) is amended by striking ``an
education individual retirement account'' each place it
appears and inserting ``a Coverdell education savings
account''.
(B) The heading for paragraph (1) of section 530(b)
is amended by striking ``Education individual
retirement account'' and inserting ``Coverdell
education savings account''.
(C) The heading for section 530 is amended to read
as follows:
``SEC. 530. COVERDELL EDUCATION SAVINGS ACCOUNTS.''.
(D) The item in the table of contents for part VII
of subchapter F of chapter 1 relating to section 530 is
amended to read as follows:
``Sec. 530. Coverdell education savings
accounts.''.
(2) Conforming amendments.--
(A) The following provisions are each amended by
striking ``an education individual retirement'' each
place it appears and inserting ``a Coverdell education
savings'':
(i) Section 25A(e)(2).
(ii) Section 72(e)(9).
(iii) Section 135(c)(2)(C).
(iv) Section 4973(a).
(v) Subsections (c) and (e) of section
4975.
(B) The following provisions are each amended by
striking ``education individual retirement'' each place
it appears and inserting ``Coverdell education
savings'':
(i) Section 26(b)(2)(E).
(ii) Section 4973(e).
(iii) Section 6693(a)(2)(D).
(C) The headings for each of the following
provisions are amended by striking ``education
individual retirement accounts'' each place it appears
and inserting ``Coverdell education savings accounts''.
(i) Section 72(e)(9).
(ii) Section 135(c)(2)(C).
(iii) Section 4973(e).
(iv) Section 4975(c)(5).
(h) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2001.
(2) Subsection (g).--The amendments made by subsection (g)
shall take effect on the date of the enactment of this Act.
SEC. 3. EXCLUSION FROM INCOME OF CERTAIN AMOUNTS CONTRIBUTED TO
COVERDELL EDUCATION SAVINGS ACCOUNTS.
(a) In General.--Part III of subchapter B or chapter 1 of the
Internal Revenue Code of 1986 (relating to items specifically excluded
from gross income) is amended by redesignating section 139 as section
140 and by adding at the end the following:
``SEC. 139. COVERDELL EDUCATION SAVINGS ACCOUNTS.
``(a) Exclusion From Gross Income.--Gross income of an employee
shall not include--
``(1) amounts paid or incurred by the employer for a
qualified Coverdell education savings account contribution on
behalf of the employee or a member of the employee's family,
and
``(2) any distribution from a Coverdell education savings
account of such contribution.
``(b) Qualified Coverdell Education Savings Account Contribution.--
For purposes of this section--
``(1) In general.--The term `qualified Coverdell education
savings account contribution' means an amount contributed,
directly or indirectly, as part of an education savings program
by an employer to a Coverdell education savings account
established and maintained for the benefit of the employee or a
member of the employee's family.
``(2) Education savings program.--For purposes of paragraph
(1), an education savings program is a separate written plan of
an employer for the exclusive benefit of such employer's
employees--
``(A) under which the employer makes contributions
described in paragraph (1), and
``(B) which meets requirements similar to the
requirements of paragraphs (2), (3), (5), and (6) of
section 127(b).''.
(b) Conforming Amendment.--The table of sections for part III of
subchapter B or chapter 1 of the Internal Revenue Code of 1986 is
amended by striking the item relating to section 139 and by inserting
the following:
``Sec. 139. Coverdell education savings
accounts.
``Sec. 140. Cross references to other
Acts.''.
(c) Effective Date.--The amendments made by this section shall
apply to contributions made in taxable years beginning after December
31, 2001.
<all>
Introduced in Senate
Read twice and referred to the Committee on Finance.
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