To amend the Internal Revenue Code of 1986 to create Lifetime Savings Accounts.

SECTION 1. LIFETIME SAVINGS ACCOUNTS.

    (a) In General.--Subchapter F of Chapter 1 of the Internal Revenue 
Code of 1986 (relating to exempt organizations) is amended by adding at 
the end the following new part:

                  ``PART IX--LIFETIME SAVINGS ACCOUNTS

``SEC. 530A. LIFETIME SAVINGS ACCOUNTS.

    ``(a) General Rule.--A Lifetime Savings Account shall be exempt 
from taxation under this subtitle. Notwithstanding the preceding 
sentence, such account shall be subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated business income of 
charitable organizations).
    ``(b) Lifetime Savings Account.--For purposes of this section, the 
term `Lifetime Savings Account' means a trust created or organized in 
the United States for the exclusive benefit of an individual or his 
beneficiaries and which is designated (in such manner as the Secretary 
shall prescribe) at the time of the establishment of the trust as a 
Lifetime Savings Account, but only if the written governing instrument 
creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover 
        contribution described in subsection (d)--
                    ``(A) no contribution will be accepted unless it is 
                in cash, and
                    ``(B) contributions will not be accepted for the 
                calendar year in excess of the contribution limit 
                specified in subsection (c)(1).
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section or who has so demonstrated with respect to any 
        individual retirement plan.
            ``(3) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of his 
        account is nonforfeitable.
            ``(5) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(c) Treatment of Contributions and Distributions.--
            ``(1) Contribution limit.--
                    ``(A) In general.--The aggregate amount of 
                contributions (other than qualified rollover 
                contributions described in subsection (d)) for any 
                calendar year to all Lifetime Savings Accounts 
                maintained for the benefit of an individual shall not 
                exceed $5,000.
                    ``(B) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of any 
                        calendar year after 2005, the $5,000 amount 
                        under 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, 
                                determined by substituting `calendar 
                                year 2004' for `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any amount after 
                        adjustment under clause (i) is not a multiple 
                        of $500, such amount shall be rounded to the 
                        next lower multiple of $500.
            ``(2) Distributions.--Any distribution from a Lifetime 
        Savings Account shall not be includible in gross income.
    ``(d) Qualified Rollover Contribution.--For purposes of this 
section, the term `qualified rollover contribution' means a 
contribution to a Lifetime Savings Account--
            ``(1) from another such account of the same beneficiary, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account,
            ``(2) from a Lifetime Savings Account of a spouse of the 
        beneficiary of the account to which the contribution is made, 
        but only if such amount is contributed not later than the 60th 
        day after the distribution from such other account, and
            ``(3) before January 1, 2006, from--
                    ``(A) a qualified tuition program pursuant to 
                section 529(c)(3)(E), or
                    ``(B) a Coverdell education savings account 
                pursuant to section 530(d)(9).
    ``(e) Loss of Taxation Exemption of Account Where Beneficiary 
Engages in Prohibited Transaction.--Rules similar to the rules of 
paragraph (2) of section 408(e) shall apply to any Lifetime Savings 
Account.
    ``(f) Custodial Accounts.--For purposes of this section, a 
custodial account or an annuity contract issued by an insurance company 
qualified to do business in a State shall be treated as a trust under 
this section if--
            ``(1) the custodial account or annuity contract would, 
        except for the fact that it is not a trust, constitute a trust 
        which meets the requirements of subsection (b), and
            ``(2) in the case of a custodial account, the assets of 
        such account are held by a bank (as defined in section 408(n)) 
        or another person who demonstrates, to the satisfaction of the 
        Secretary, that the manner in which he will administer the 
        account will be consistent with the requirements of this 
        section.
For purposes of this title, in the case of a custodial account or 
annuity contract treated as a trust by reason of the preceding 
sentence, the person holding the assets of such account or holding such 
annuity contract shall be treated as the trustee thereof.
    ``(g) Reports.--The trustee of a Lifetime Savings Account shall 
make such reports regarding such account to the Secretary and to the 
beneficiary of the account with respect to contributions, 
distributions, and such other matters as the Secretary may require. The 
reports required by this subsection shall be filed at such time and in 
such manner and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 of the 
        Internal Revenue Code of 1986 (relating to tax on excess 
        contributions to certain tax-favored accounts and annuities) is 
        amended by striking ``or'' at the end of paragraph (4), by 
inserting ``or'' at the end of paragraph (5), and by inserting after 
paragraph (5) the following new paragraph:
            ``(6) a Lifetime Savings Account (as defined in section 
        530A),''.
            (2) Excess contribution.--Section 4973 of such Code is 
        amended by adding at the end the following new subsection:
    ``(h) Excess Contributions to Lifetime Savings Accounts.--For 
purposes of this section--
            ``(1) In general.--In the case of Lifetime Savings Accounts 
        (within the meaning of section 530A), the term `excess 
        contributions' means the sum of--
                    ``(A) the amount by which the amount contributed 
                for the calendar year to such accounts (other than 
                qualified rollover contributions (as defined in section 
                530A(d))) exceeds the contribution limit under section 
                530A(c)(1), and
                    ``(B) the amount determined under this subsection 
                for the preceding calendar year, reduced by the excess 
                (if any) of the maximum amount allowable as a 
                contribution under section 530A(c)(1) for the calendar 
                year over the amount contributed to the accounts for 
                the calendar year.
            ``(2) Special rule.--A contribution shall not be taken into 
        account under paragraph (1) if such contribution (together with 
        the amount of net income attributable to such contribution) is 
        returned to the beneficiary before July 1 of the year following 
        the year in which the contribution is made.''.
    (c) Failure To Provide Reports on Lifetime Savings Accounts.--
Paragraph (2) of section 6693(a) of the Internal Revenue Code of 1986 
(relating to failure to provide reports on individual retirement 
accounts or annuities) is amended by striking ``and'' at the end of 
subparagraph (D), by striking the period at the end of subparagraph (E) 
and inserting ``, and'', and by adding at the end the following new 
subparagraph:
                    ``(F) section 530A(g) (relating to Lifetime Savings 
                Accounts).''.
    (d) Rollovers From Certain Other Tax-Free Accounts.--
            (1) Qualified state tuition plans.--Paragraph (3) of 
        section 529(c) of the Internal Revenue Code of 1986 (relating 
        to distributions) is amended by adding at the end the following 
        new subparagraph:
                    ``(E) Rollovers to lifetime savings accounts.--
                            ``(i) In general.--Subparagraph (A) shall 
                        not apply to the qualified portion of any 
                        distribution which, before January 1, 2006, and 
                        within 60 days of such distribution, is 
                        transferred to a Lifetime Savings Account 
                        (within the meaning of section 530A) of the 
                        designated beneficiary. This subparagraph shall 
                        only apply to distributions in accordance with 
                        the previous sentence from an account which was 
                        in existence with respect to such designated 
                        beneficiary on December 31, 2003.
                            ``(ii) Qualified portion.--For purposes of 
                        this subparagraph, the term `qualified portion' 
                        means the amount equal to the sum of--
                                    ``(I) the lesser of $50,000 or the 
                                amount which is in the account of the 
                                designated beneficiary on December 31, 
                                2003,
                                    ``(II) any contributions to such 
                                account for the taxable year beginning 
                                after December 31, 2004, and before 
                                January 1, 2005, and
                                    ``(III) any earnings of such 
                                account for such year.
                            ``(iii) Limitation.--The sum of the amounts 
                        taken into account under clause (ii)(II) with 
                        respect to all accounts of the designated 
                        beneficiary plus any amounts with respect to 
                        such designated beneficiary taken into account 
                        under section 530(d)(9)(B)(ii) shall not exceed 
                        the sum of $5,000 plus the earnings 
                        attributable to such amounts.''.
            (2) Coverdell education savings accounts.--Subsection (d) 
        of section 530 of such Code (relating to tax treatment of 
        distributions) is amended by inserting at the end the following 
        new paragraph:
            ``(9) Rollovers to lifetime savings accounts.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                the qualified portion of any amount paid or distributed 
                from a Coverdell education savings account to the 
                extent that the amount received is paid, before January 
                1, 2006, and not later than the 60th day after the date 
                of such payment or distribution, into a Lifetime 
                Savings Account (within the meaning of section 530A) 
                for the benefit of the same beneficiary. This paragraph 
                shall only apply to amounts paid or distributed in 
                accordance with the preceding sentence from an account 
                which was in existence with respect to such beneficiary 
                on December 31, 2003.
                    ``(B) Qualified portion.--For purposes of this 
                paragraph, the term `qualified portion' means the 
                amount equal to the sum of--
                            ``(i) the amount which is in the account of 
                        the beneficiary on December 31, 2003,
                            ``(ii) any contributions to such account 
                        for the taxable year beginning after December 
                        31, 2004, and before January 1, 2005, and
                            ``(iii) any earnings of such account for 
                        such year.
                    ``(C) Limitation.--The sum of the amounts taken 
                into account under subparagraph (B)(ii) with respect to 
                all accounts of the beneficiary plus any amounts with 
                respect to such beneficiary taken into account under 
                section 529(c)(3)(E)(ii)(II) shall not exceed the sum 
                of $5,000 plus the earnings attributable to such 
                amounts.''.
    (e) Conforming Amendment.--The table of parts for subchapter F of 
chapter 1 of the Internal Revenue Code of 1986 is amended by adding at 
the end the following new item:

                              ``Part IX. Lifetime Savings Accounts.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

Summary: Amends the Internal Revenue Code to create a tax-exempt trust to be known as a Lifetime Savings Account for the benefit of an individual taxpayer or his beneficiaries. Allows an individual taxpayer to make cash contributions up to $5,000 each year to such trusts. Prohibits: (1) investment of trust assets in life insurance contracts. And (2) commingling of trust assets with any other property except in a common trust or investment fund. Provides for an annual cost-of-living adjustment to the contribution amount. Excludes from gross income distributions from such a trust. Allows tax-free rollovers to a trust from: (1) another account of the trust beneficiary if the rollover from such other account is completed within 60 days of the date of distribution. (2) from a Lifetime Savings Account of the spouse of the trust beneficiary if the rollover from the spouse's account is completed within 60 days of the date of distribution. (3) from a qualified state tuition plan or a Coverdell education savings account before January 1, 2006.