II

106TH CONGRESS

1ST SESSION S. 1013

To amend the Internal Revenue Code of 1986 to promote lifetime savings

by allowing people to establish child savings accounts within Roth IRAs

and by allowing the savings to be used for education, first-time home

purchases, and retirement, to expand the availability of Roth IRAs to

all Americans and to protect their contributions from inflation, and

for other purposes.

IN THE SENATE OF THE UNITED STATES

MAY 11, 1999

Mr. FRIST 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 promote

lifetime savings by allowing people to establish child savings accounts within Roth IRAs and by allowing the

savings to be used for education, first-time home purchases, and retirement, to expand the availability of Roth

IRAs to all Americans and to protect their contributions

from inflation, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

2 (a) SHORT TITLE.—This Act may be cited as the

3 ‘‘Child Savings Account Act’’.

4 (b) AMENDMENT OF 1986 CODE.—Except as other5 wise expressly provided, whenever in this Act an amend6 ment or repeal is expressed in terms of an amendment

7 to, or repeal of, a section or other provision, the reference

8 shall be considered to be made to a section or other provi9 sion of the Internal Revenue Code of 1986.

10 TITLE I—SAVINGS INCENTIVES

11 FOR AMERICA’S CHILDREN

12 SEC. 101. ESTABLISHMENT OF CHILD SAVINGS ACCOUNTS

13 WITHIN ROTH IRAS.

14 (a) IN GENERAL.—Section 408A (relating to Roth

15 IRAs) is amended by adding at the end the following new

16 subsection:

17 ‘‘(g) CHILD SAVINGS ACCOUNT.—

18 ‘‘(1) IN GENERAL.—If the individual on whose

19 behalf a Roth IRA was established has not attained

20 the age of 17 before the close of any calendar year—

21 ‘‘(A) the Roth IRA shall be treated as a

22 Child Savings Account for the taxable year, and

23 ‘‘(B) this section shall be applied to the

24 Roth IRA for the taxable year with the modi25 fications provided in paragraphs (2) and (3).
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1 ‘‘(2) WAIVER OF EARNED INCOME REQUIRE2 MENT.—For purposes of subsection (c)(2)(A), the

3 maximum amount allowable as a deduction under

4 section 219 shall be computed without regard to the

5 compensation limitation of section 219(b)(1)(B).

6 ‘‘(3) ROLLOVER WHERE ACCOUNT HOLDER

7 DIES BEFORE AGE 30.—If an individual on whose be8 half a Roth IRA was established dies before attain9 ing the age of 30—

10 ‘‘(A) the transfer of the individual’s inter11 est in a Roth IRA to a member of the individ12 ual’s family (within the meaning of section

13 529(e)(2)) shall not be considered a taxable

14 transfer for purposes of this title, and

15 ‘‘(B) such interest shall, on and after the

16 date of the transfer, be treated as a Roth IRA

17 maintained for the benefit of the family member

18 and not of the individual.’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Section 408(a)(1) is amended by striking

21 ‘‘or 403(b)(8)’’ and inserting ‘‘, 403(b)(8), or

22 408A(g)(3)’’.

23 (2) Section 408(d)(3)(C)(ii)(II) is amended by

24 inserting ‘‘or in the case of a Roth IRA, a member

25 of the same family of such other individual’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1999.

4 SEC. 102. ADDITIONAL CHILD CREDIT FOR CONTRIBUTIONS

5 TO CHILD SAVINGS ACCOUNTS BY TAX6 PAYERS NOT ELIGIBLE FOR ENTIRE CHILD

7 CREDIT.

8 (a) IN GENERAL.—Section 24 (relating to child tax

9 credit) is amended by adding at the end the following new

10 subsection:

11 ‘‘(g) ADDITIONAL REFUNDABLE CREDIT FOR CON12 TRIBUTIONS TO CHILD SAVINGS ACCOUNTS.—

13 ‘‘(1) IN GENERAL.—The aggregate credits al14 lowed under subpart C shall be increased by the

15 lesser of—

16 ‘‘(A) the credit which would be allowed

17 under this section without regard to this sub18 section and subsection (d) and the limitation

19 under section 26(a), or

20 ‘‘(B) the amount of the contributions to

21 child savings accounts of qualifying children of

22 the taxpayer for the taxable year to the extent

23 such contributions do not exceed $100 multi24 plied by the number of qualifying children.
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1 ‘‘(2) LIMITATION.—In no event shall the

2 amount of the increase under paragraph (1)

3 exceed—

4 ‘‘(A) the aggregate amount of credits al5 lowed by this subpart in excess of the limitation

6 imposed by section 26(a), reduced by

7 ‘‘(B) any additional credits allowed by sub8 section (d).

9 ‘‘(3) COORDINATION.—The credit under this

10 subsection shall not be taken into account in apply11 ing subsection (d) and section 32(n) (relating to

12 supplemental child credit).’’

13 (b) EFFECTIVE DATE.—The amendment made by

14 this section shall apply to taxable years beginning after

15 December 31, 1999.

16 SEC. 103. TAX-FREE DISTRIBUTIONS FOR ELEMENTARY,

17 SECONDARY, AND COLLEGE EDUCATION.

18 (a) IN GENERAL.—Section 408A(d)(5) (defining

19 qualified special purpose distribution) is amended to read

20 as follows:

21 ‘‘(5) QUALIFIED SPECIAL PURPOSE DISTRIBU22 TION.—For purposes of this section—

23 ‘‘(A) IN GENERAL.—The term ‘qualified

24 special purpose distribution’ means any of the

25 following distributions:
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1 ‘‘(i) Distributions described in sub2 paragraph (F) of section 72(t)(2) (relating

3 to first home purchases).

4 ‘‘(ii) Distributions to the extent such

5 distributions do not exceed the qualified

6 education expenses of the taxpayer for the

7 taxable year.

8 ‘‘(B) QUALIFIED EDUCATION EXPENSES.—

9 ‘‘(i) IN GENERAL.—The term ‘quali10 fied education expenses’ means—

11 ‘‘(I) qualified higher education

12 expenses (as defined in section

13 72(t)(7)),

14 ‘‘(II) qualified elementary and

15 secondary education expenses, and

16 ‘‘(III) amounts paid or incurred

17 during the taxable year to purchase

18 tuition credits or certificates, or to

19 make contributions to an account,

20 under a qualified State tuition pro21 gram (as defined in section 529(b))

22 for the benefit of the beneficiary of

23 the account, the beneficiary’s spouse,

24 or any child (as defined in section
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1 151(c)(3)) or grandchild of the bene2 ficiary or spouse.

3 ‘‘(ii) LIMITATION.—The aggregate

4 amount treated as qualified education ex5 penses for any taxable year shall not ex6 ceed an amount equal to the excess (if

7 any) of—

8 ‘‘(I) ll percent of the fair

9 market value of the assets in the Roth

10 IRA as of the close of the calendar

11 year preceding the calendar year in

12 which the taxable year begins, over

13 ‘‘(II) distributions described in

14 subparagraph (F) of section 72(t)(2)

15 (relating to first home purchases) for

16 the taxable year.

17 ‘‘(C) QUALIFIED ELEMENTARY AND SEC18 ONDARY EDUCATION EXPENSES.—

19 ‘‘(i) IN GENERAL.—The term ‘quali20 fied elementary and secondary education

21 expenses’ means—

22 ‘‘(I) expenses for tuition, fees,

23 academic tutoring, special needs serv24 ices, books, supplies, computer equip25 ment (including related software and
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1 services), and other equipment which

2 are incurred in connection with the

3 enrollment or attendance of the des4 ignated beneficiary of the trust, or of

5 the child or grandchild of the bene6 ficiary of the account or beneficiary’s

7 spouse, as an elementary or secondary

8 school student at a public, private, or

9 religious school, or

10 ‘‘(II) expenses for room and

11 board, uniforms, transportation, and

12 supplementary items and services (in13 cluding extended day programs) which

14 are required or provided by a public,

15 private, or religious school in connec16 tion with such enrollment or attend17 ance.

18 ‘‘(ii) SPECIAL RULE FOR HOME19 SCHOOLING.—Such term shall include ex20 penses described in clause (i) required for

21 education provided for homeschooling if

22 the requirements of any applicable State or

23 local law are met with respect to such edu24 cation.
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1 ‘‘(iii) SCHOOL.—The term ‘school’

2 means any school which provides elemen3 tary education or secondary education

4 (kindergarten through grade 12), as deter5 mined under State law.’’

6 (b) ADDITIONAL TAX NOT TO APPLY TO EDUCATION

7 EXPENSES.—Section 72(t)(2) is amended by adding at

8 the end the following new subparagraph:

9 ‘‘(G) CERTAIN EDUCATION EXPENSES IN

10 CASE OF A ROTH IRA.—Distributions to an indi11 vidual from a Roth IRA which are described in

12 subclause (II) or (III) of section

13 408A(d)(5)(B)(i). Distributions shall not be

14 taken into account under the preceding sen15 tence if such distributions are described in sub16 paragraphs (A), (C), (D), (E), or (F) or to the

17 extent paragraph (1) does not apply to such

18 distributions by reason of subparagraph (B).

19 (c) REPEAL OF EDUCATION IRAS.—

20 (1) IN GENERAL.—Section 530 (relating to edu21 cation individual retirement accounts) is repealed.

22 (2) CONFORMING AMENDMENTS.—

23 (A) Section 25A(e) is amended to read as

24 follows:
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1 ‘‘(e) ELECTION TO HAVE SECTION APPLY.—No

2 credit shall be allowed under subsection (a) for a taxable

3 year with respect to the qualified and tuition-related ex4 penses of an individual unless the taxpayer elects to have

5 this section apply to the individual for the taxable year.’’

6 (B) Section 26(b)(2) is amended by strik7 ing subparagraph (E) and by redesignating

8 subparagraphs (F) through (Q) as subpara9 graphs (E) through (P), respectively.

10 (C) Section 72(e)(9) is amended to read as

11 follows:

12 ‘‘(9) EXTENSION OF PARAGRAPH (2)(B) TO

13 QUALIFIED STATE TUITION PROGRAMS.—Notwith14 standing any other provision of this subsection,

15 paragraph (2)(B) shall apply to amounts received

16 under a qualified State tuition program (as defined

17 in section 529(b)). The rule of paragraph (8)(B)

18 shall apply for purposes of this paragraph.’’

19 (D) Section 135(c)(2)(C) is amended—

20 (i) by striking ‘‘, or to an education

21 individual retirement account (as defined

22 in section 530) on behalf of an account

23 beneficiary,’’, and
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1 (ii) by striking ‘‘AND EDUCATION IN2 DIVIDUAL RETIREMENT ACCOUNTS’’ in the

3 heading thereof.

4 (E) Section 135(d)(2) is amended by strik5 ing ‘‘by—’’ and all that follows and inserting

6 ‘‘by the amount of such expenses which are

7 taken into account in determining the credit al8 lowable to the taxpayer or any other person

9 under section 25A with respect to such ex10 penses.’’

11 (F) Section 221(e)(2)(A) is amended by

12 striking ‘‘, 135, or 530’’ and inserting ‘‘or

13 135’’.

14 (G) Section 4973(a) is amended by insert15 ing ‘‘or’’ at the end of paragraph (2), by strik16 ing ‘‘or’’ at the end of paragraph (3), and by

17 striking paragraph (4).

18 (H) Section 4973 is amended by striking

19 subsection (e) and by redesignating subsection

20 (f) as subsection (e).

21 (I) Section 4975(c) is amended by striking

22 paragraph (5).

23 (J) Section 4975(e)(1) is amended by in24 serting ‘‘or’’ at the end of subparagraph (D),
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1 by striking subparagraph (E), and by redesig2 nating subparagraph (F) as subparagraph (E).

3 (K) Section 6693(a)(2) is amended by in4 serting ‘‘and’’ at the end of subparagraph (B),

5 by striking ‘‘, and’’ at the end of subparagraph

6 (C) and inserting a period, and by striking sub7 paragraph (D).

8 (L) The table of sections for part VIII of

9 subchapter F of chapter 1 is amended by strik10 ing the item relating to section 530.

11 (d) EFFECTIVE DATE.—

12 (1) IN GENERAL.—The amendments made by

13 this section shall apply to contributions for taxable

14 years beginning after December 31, 1999 (and earn15 ings allocable thereto).

16 (2) ROLLOVERS FROM EDUCATION IRAS TO

17 ROTH IRAS.—For purposes of section 530(d)(5) of

18 the Internal Revenue Code of 1986 (as in effect be19 fore its repeal by this section), any amount received

20 from an education individual retirement account

21 which is paid into a Roth IRA within the prescribed

22 time shall be treated as if it were paid into another

23 education individual retirement account.
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1 TITLE II—EXPANSION OF

2 AVAILABILITY OF IRAS

3 SEC. 201. INFLATION ADJUSTMENT FOR DEDUCTIBLE

4 AMOUNT.

5 (a) IN GENERAL.—Section 219 is amended by redes6 ignating subsection (h) as subsection (i) and by inserting

7 after subsection (g) the following new subsection:

8 ‘‘(h) COST-OF-LIVING ADJUSTMENTS.—In the case

9 of any taxable year beginning in a calendar year after

10 1998, the $2,000 amount under subsection (b)(1)(A) shall

11 be increased by an amount equal to the product of $2,000

12 and the cost-of-living adjustment determined under sec13 tion 1(f)(3) for the calendar year in which the taxable year

14 begins, except that subparagraph (B) thereof shall be ap15 plied by substituting ‘1998’ for ‘1992’. If the amount to

16 which $2,000 would be increased under the preceding sen17 tence is not a multiple of $500, such amount shall be

18 rounded to the next lower multiple of $500.’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Section 408(a)(1) is amended by striking

21 ‘‘in excess of $2,000 on behalf of any individual’’

22 and inserting ‘‘on behalf of any individual in excess

23 of the amount in effect for such taxable year under

24 section 219(b)(1)(A)’’.
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1 (2) Section 408(b)(2)(B) is amended by strik2 ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in

3 effect under section 219(b)(1)(A)’’.

4 (3) Section 408(b) is amended by striking

5 ‘‘$2,000’’ in the matter following paragraph (4) and

6 inserting ‘‘the dollar amount in effect under section

7 219(b)(1)(A)’’.

8 (4) Section 408(j) is amended by striking

9 ‘‘$2,000’’.

10 (5) Section 408(p)(8) is amended by striking

11 ‘‘$2,000’’ and inserting ‘‘the dollar amount in effect

12 under section 219(b)(1)(A)’’.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 1999.

16 SEC. 202. REPEAL OF ADJUSTED GROSS INCOME LIMITA17 TIONS ON CONTRIBUTIONS AND ROLLOVERS

18 TO ROTH IRAS.

19 (a) IN GENERAL.—Section 408A(c) is amended by

20 striking paragraph (3) and by redesignating paragraphs

21 (4) through (7) as paragraphs (3) through (6), respec22 tively.

23 (b) REPEAL OF NONDEDUCTIBLE CONTRIBU24 TIONS.—
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1 (1) Subsection (f) of section 219 is amended by

2 striking paragraph (7).

3 (2) Paragraph (5) of section 408(d) is amended

4 by striking the last sentence.

5 (3) Section 408(o) is amended by adding at the

6 end the following new paragraph:

7 ‘‘(5) TERMINATION.—This subsection shall not

8 apply to any designated nondeductible contribution

9 for any taxable year beginning after December 31,

10 1999.’’

11 (4) Subsection (b) of section 4973 is amended

12 by striking the last sentence.

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning after

15 December 31, 1999.

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