Higher Education Savings Plan Act of 1993

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Higher Education Savings Plan Act of 
1993''.

SEC. 2. PENALTY FREE WITHDRAWALS FROM ANNUITIES FOR HIGHER EDUCATION 
              EXPENSES.

    (a) In General.--Paragraph (2) of section 72(q) of the Internal 
Revenue Code of 1986 (relating to 10-percent penalty for premature 
distributions from annuity contracts) is amended by striking ``or'' at 
the end of subparagraph (I), by striking the period at the end of 
subparagraph (J) and inserting ``, or'', and by inserting after 
subparagraph (J) the following new subparagraph:
            ``(K) which is a qualified higher education expense 
        distribution (as defined in paragraph (4)).''
    (b) Qualified Higher Education Expense Distribution.--Subsection 
(q) of section 72 of such Code is amended by adding at the end thereof 
the following new paragraph:
            ``(4) Qualified higher education expense distribution.--
                    ``(A) In general.--For purposes of paragraph 
                (2)(K), the term `qualified higher education expense 
                distribution' means any distribution from a designated 
                higher education expense annuity to the taxpayer if 
                such distribution is used within 90 days of the date of 
                the distribution to pay qualified tuition and related 
                expenses (as defined in section 117(b)) required for 
                the enrollment or attendance of such taxpayer, the 
                taxpayer's spouse, or a child (as defined in section 
                151(c)(3)) or grandchild of such taxpayer at an 
                eligible educational institution (as defined in section 
                135(c)(3)); except that such expenses shall be reduced 
                by any amount excluded from gross income under section 
                135 by reason of such expenses.
                    ``(B) Designated higher education expense 
                annuity.--
                            ``(i) In general.--The term `designated 
                        higher education expense annuity' means any 
                        annuity purchased after December 31, 1992, and 
                        designated for purposes of this paragraph by 
                        the purchaser at the time of purchase as an 
                        annuity to which this paragraph applies.
                            ``(ii) Certain annuities received in an 
                        exchange not eligible.--Such term shall not 
                        include any annuity acquired in an exchange to 
                        which section 1035 applies unless the annuity 
                        given up by the taxpayer in the exchange was a 
                        designated higher education expense annuity.''
    (c) Gift Tax Treatment.--Subsection (e) of section 2503 of such 
Code is amended by adding at the end thereof the following new 
paragraph:
            ``(3) Treatment of premiums paid under designated higher 
        education expense annuities.--
                    ``(A) In general.--Any premium paid for a 
                designated higher education expense annuity shall not 
                be treated as transfer of property by gift for purposes 
                of this chapter.
                    ``(B) Recapture rules.--If any premium paid by any 
                person for a designated higher education expense 
                annuity is not treated as a taxable gift solely by 
                reason of subparagraph (A)--
                            ``(i) Lifetime distributions not used for 
                        educational purposes.--Any disqualified 
                        lifetime distribution from the portion of any 
                        annuity attributable to such premium shall be 
                        treated as a transfer by gift by such person.
                            ``(ii) Inclusion in gross estate.--The 
                        gross estate of such person shall include the 
                        value (as of the date of the decedent's death 
                        or applicable valuation date set forth in 
                        section 2032) of the portion of any annuity 
                        attributable to such premium.
                    ``(C) Disqualified lifetime distribution.--For 
                purposes of subparagraph (B), the term `disqualified 
                lifetime distribution' means any distribution which is 
                not a qualified higher education distribution and which 
                is made during the life of the person referred to in 
                subparagraph (B) to or for the benefit of another 
                person.
                    ``(D) Other definitions.--For purposes of this 
                paragraph, the terms `designated higher education 
                expense annuity' and `qualified higher education 
                expense distribution' have the respective meanings 
                given such terms by section 72(q)(4).''
    (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1994.

Summary: Higher Education Savings Plan Act of 1993 - Amends the Internal Revenue Code to exempt distributions from a higher education expenses annuity contract from the ten-percent penalty on premature distributions from annuity contracts. Excludes the premium to purchase such a contract from gift tax liability.