A bill to amend the Internal Revenue Code of 1954 to provide for the establishment of, and the deduction of contributions to, education savings accounts.

Summary

Amends the Internal Revenue Code to allow an individual taxpayer an income tax deduction for contributions to a savings account established to pay the education expenses (tuition, supplies, meals, and lodging) at an institution of higher education or a vocational school of the taxpayer or the child of the taxpayer unless the taxpayer has attained the age of 50 or the child has attained the age of 25. Limits the amount of such deduction to $2,000 (adjusted for inflation) for each account per calendar year. Provides that no account may have more than one beneficiary and that no individual may be a beneficiary of more than one account. Requires any balance in an education savings account to be distributed after the eligible individual for whose benefit the account is established attains the age of 60 if the eligible individual is the taxpayer or age 30 if the eligible individual is the taxpayer's child. Requires the trustee of the education savings account to transfer five percent of the amount of any contribution to a qualified State educational fund which provides educational assistance to individuals attending eligible educational institutions within the State. Requires that amounts paid or distributed out of an education savings account must be included in the gross income of each individual who has contributed to the account in the ratio of the amounts which they contributed to such accounts, unless such amount is used exclusively to pay the educational expenses incurred by the individual for whose benefit the account is established. Requires the beneficiary of an education savings account to include pro-rata over a ten-year period amounts paid or distributed out of the account which were used exclusively to pay the educational expenses incurred by that individual after specified dates. Provides that an education savings account is exempt from taxation except for the tax on unrelated business income. Revokes the tax exemption of the account where the individual for whose benefit the account is established engages in certain prohibited transactions with the account. Imposes a ten percent penalty tax on distributions which are not used for educational expenses. Requires the trustee of an education savings account to file reports with the Secretary of the Treasury on the maintenance of the account. Imposes a penalty for failure to file any required report. Extends the deduction for contributions to an education savings account to taxpayers who do not otherwise itemize deductions. Provides that distributions from an education savings account shall not be taken into account in determining support to the extent such distribution is excluded from gross income of the individual for whose benefit the account has been established. Provides that any payment made to an education savings account for the benefit of a child shall not be treated as a gift for gift tax purposes.

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Documents

1 official file

• Introduced in Senate

  summary · EN · 28 January 1986

  Open at official source

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