Higher Education Affordability and Availability Act

SECTION 1. SHORT TITLE; COORDINATION WITH TAXPAYER RELIEF ACT OF 1997.

    (a) Short Title.--This Act may be cited as the ``Higher Education 
Affordability and Availability Act''.
    (b) Coordination With Taxpayer Relief Act of 1997.--Any reference 
in this Act to any section of the Internal Revenue Code of 1986 amended 
or added by the Taxpayer Relief Act of 1997 shall be a reference to 
such section as so amended or added.

SEC. 2. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM 
              QUALIFIED TUITION PROGRAMS; COVERAGE OF PRIVATE PROGRAMS.

    (a) Exclusion.--
            (1) In general.--Subparagraph (B) of section 529(c)(3) of 
        the Internal Revenue Code of 1986 (relating to distributions) 
        is amended to read as follows:
                    ``(B) Distributions for qualified higher education 
                expenses.--If a distributee elects the application of 
                this subparagraph for any taxable year--
                            ``(i) no amount shall be includible in 
                        gross income by reason of a distribution which 
                        consists of providing a benefit to the 
                        distributee which, if paid for by the 
                        distributee, would constitute payment of a 
                        qualified higher education expense, and
                            ``(ii) the amount which (but for the 
                        election) would be includible in gross income 
                        by reason of any other distribution shall not 
                        be so includible in an amount which bears the 
                        same ratio to the amount which would be so 
                        includible as the amount of the qualified 
                        higher education expenses of the distributee 
                        bears to the amount of the distribution.''
            (2) Additional tax on amounts not used for higher education 
        expenses.--Section 529 of such Code is amended by adding at the 
        end the following new subsection:
    ``(f) Additional Tax for Distributions Not Used for Educational 
Expenses.--
            ``(1) In general.--The tax imposed by section 530(d)(4) 
        shall apply to payments and distributions from qualified 
        tuition programs in the same manner as such tax applies to 
        education individual retirement accounts.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution to a 
        contributor of any contribution paid during a taxable year to a 
        qualified tuition program to the extent that such contribution 
        exceeds the limitation in section 4973(e) if such distribution 
        (and the net income with respect to such excess contribution) 
        meets requirements comparable to the requirements of clauses 
        (i) and (ii) of section 530(d)(4)(C).''
            (3) Coordination with education credits.--Section 25A(e)(2) 
        of such Code is amended by inserting ``529(c)(3)(B) or'' before 
        ``530(d)(2)''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to distributions after December 31, 1997, for 
        education furnished in academic periods beginning after such 
        date.
    (b) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
            (1) In general.--Paragraph (1) of section 529(b) of such 
        Code (defining qualified State tuition program) is amended by 
        inserting ``or by one or more eligible educational 
        institutions'' after ``maintained by a State or agency or 
        instrumentality thereof''.
            (2) Limitation on contributions to qualified tuition 
        programs not maintained by a state.--Subsection (b) of section 
        529 of such Code is amended by adding at the end the following 
        new paragraph:
            ``(8) Limitation on contributions to qualified tuition 
        programs not maintained by a state.--In the case of a program 
        not maintained by a State or agency or instrumentality thereof, 
        such program shall not be treated as a qualified tuition 
        program unless it limits the annual contribution to the program 
        on behalf of a designated beneficiary to $5,000.''
            (3) Tax on excess contributions.--
                    (A) In general.--Subsection (a) of section 4973 of 
                such Code is amended by striking ``or'' at the end of 
                paragraph (3), by redesignating paragraph (4) as 
                paragraph (5), and by inserting after paragraph (3) the 
                following new paragraph:
            ``(4) a qualified tuition program (as defined in section 
        529) not maintained by a State or any agency or instrumentality 
        thereof, or''.
                    (B) Excess contributions defined.--Section 4973(e) 
                of such Code is amended to read as follows:
    ``(e) Excess Contributions to Private Qualified Tuition Program and 
Education Individual Retirement Accounts.--For purposes of this 
section--
            ``(1) In general.--In the case of private education 
        investment accounts maintained for the benefit of any 1 
        beneficiary, the term `excess contributions' means the amount 
        by which the amount contributed for the taxable year to such 
        accounts exceeds $5,000.
            ``(2) Private education investment account.--For purposes 
        of paragraph (1), the term `private education investment 
        account' means--
                    ``(A) a qualified tuition program (as defined in 
                section 529) not maintained by a State or any agency or 
                instrumentality thereof, and
                    ``(B) an education individual retirement account 
                (as defined in section 530).
            ``(3) Special rules.--For purposes of paragraph (1), the 
        following contributions shall not be taken into account:
                    ``(A) Any contribution which is distributed out of 
                the education individual retirement account in a 
                distribution to which section 530(d)(4)(C) applies.
                    ``(B) Any contribution to a qualified tuition 
                program (as so defined) described in section 
                530(b)(2)(B) from any such account.
                    ``(C) Any rollover contribution.''
            (4) Conforming amendments.--
                    (A) Paragraph (2) of section 26(b) of such Code is 
                amended by redesignating subparagraphs (E) through (Q) 
                as subparagraphs (F) through (R), respectively, and by 
                inserting after subparagraph (D) the following new 
                subparagraph:
                    ``(E) section 529(f) (relating to additional tax on 
                certain distributions from qualified tuition 
                programs),''.
                    (B) The text and headings of sections 529 and 530 
                of such Code are amended by striking ``qualified State 
                tuition program'' each place it appears and inserting 
                ``qualified tuition program''.
                    (C)(i) The section heading of section 529 of such 
                Code is amended to read as follows:

``SEC. 529. QUALIFIED TUITION PROGRAMS.''

                    (ii) The item relating to section 529 of such Code 
                in the table of sections for part VIII of subchapter F 
                of chapter 1 is amended by striking ``State''.
            (5) Effective date.--The amendments made by this subsection 
        shall take effect on January 1, 1998.
    (c) Change of Qualified Tuition Program or of Designated 
Beneficiary.--
            (1) In general.--Clause (i) of section 529(c)(3)(C) of such 
        Code is amended by inserting ``to another qualified tuition 
        program for the benefit of the designated beneficiary or'' 
        after ``transferred''.
            (2) Inclusion of siblings as member of family.--Paragraph 
        (e)(2) of section 529(e) of such Code is amended by inserting 
        before the period at the end the following: ``, except that 
        such term shall include any sibling (whether by the whole or 
        half blood) of the designated beneficiary''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on January 1, 1998.

Summary: Higher Education Affordability and Availability Act - Amends the Internal Revenue Code to exclude from income distributions from qualified tuition programs used for qualifying higher education expenses. Includes within the definition of qualified State tuition program programs maintained by eligible educational institutions. Requires such non-State programs to limit annual contributions on behalf of a designated beneficiary to $5,000. Sets forth related excess contribution provisions.