II 

117TH CONGRESS 

1ST SESSION S. 3081 

To amend the Internal Revenue Code of 1986 to permit withdrawals from 

certain retirement plans for repayment of student loan debt, and for 

other purposes. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 27, 2021 

Mr. PAUL 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 permit 

withdrawals from certain retirement plans for repayment 

of student loan debt, 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, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Tax Free Education 

5 Act of 2021’’. 


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1 SEC. 2. WITHDRAWALS FOR HIGHER EDUCATION EX2 PENSES. 

3 (a) 401(k) PLANS.—Paragraph (14) of section 

4 401(k) of the Internal Revenue Code of 1986 is amended 

5 by adding at the end the following new subparagraph: 

6 ‘‘(C) DISTRIBUTIONS FOR QUALIFIED EDU7 CATION EXPENSES.— 

8 ‘‘(i) IN GENERAL.—A distribution 

9 shall be treated as made upon hardship of 

10 the employee to the extent that the aggre11 gate amount of such distributions during 

12 the taxable year does not exceed the lesser 

13 of— 

14 ‘‘(I) the amount paid by the tax15 payer for qualified education expenses 

16 for any individual during such taxable 

17 year, or 

18 ‘‘(II) $5,250. 

19 ‘‘(ii) DISTRIBUTION MUST BE OTHER20 WISE DISALLOWED.—Clause (i) shall not 

21 apply to any distribution which is permis22 sible under paragraph (2)(B)(i) (including 

23 distributions which would be treated as 

24 made upon hardship of the employee with25 out regard to this subparagraph). 


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1 ‘‘(iii) NO REQUIREMENT TO DEM2 ONSTRATE HARDSHIP.—Clause (i) shall 

3 apply without regard to any requirement to 

4 demonstrate financial need or hardship, or 

5 to demonstrate that other assets are not 

6 available to pay the qualified education ex7 penses. 

8 ‘‘(iv) ADDITIONAL TAX UNDER SEC9 TION 72(t) NOT TO APPLY.—No tax shall 

10 be imposed under section 72(t) on any 

11 amount treated as a hardship distribution 

12 by reason of clause (i). 

13 ‘‘(v) QUALIFIED EDUCATION EX14 PENSES.—For purposes of this subpara15 graph, the term ‘qualified education ex16 penses’ has the meaning given such term 

17 by section 530(b)(2)(A), applied without 

18 regard to subparagraph (B) of section 

19 530(b)(2).’’. 

20 (b) 403(b) PLANS.—Paragraph (11) of section 

21 403(b) of the Internal Revenue Code of 1986 is amended 

22 by adding at the end the following: ‘‘Under rules similar 

23 to the rules of section 401(k)(14)(C), a distribution shall 

24 be treated as made upon hardship of the employee to the 

25 extent that the aggregate amount of such distributions 


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1 during the taxable year does not exceed the lesser of the 

2 amount paid by the taxpayer for qualified education ex3 penses during such taxable year, or $5,250.’’. 

4 (c) 457 PLANS.—Paragraph (1) of section 457(d) of 

5 the Internal Revenue Code of 1986 is amended by adding 

6 at the end the following: ‘‘Under rules similar to the rules 

7 of section 401(k)(14)(C) (and without regard to whether 

8 the expenses are unforeseen), a distribution shall be treat9 ed as made by reason of unforeseen emergency to the ex10 tent that the aggregate amount of such distributions dur11 ing the taxable year does not exceed the lesser of the 

12 amount paid by the taxpayer for qualified education ex13 penses during such taxable year, or $5,250.’’. 

14 (d) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to distributions made after Decem16 ber 31, 2021. 

17 SEC. 3. WITHDRAWALS FOR STUDENT LOAN EXPENSES. 

18 (a) IRAS.—Paragraph (7) of section 72(t) of the In19 ternal Revenue Code of 1986 is amended by adding at the 

20 end the following new subparagraph: 

21 ‘‘(C) STUDENT LOANS.—Such term shall 

22 include amounts paid in repayment of any loan 

23 made to an individual described in subpara24 graph (A) to assist the individual in attending 


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1 an educational organization described in section 

2 170(b)(1)(A)(ii).’’. 

3 (b) 401(k)S.—Clause (v) of section 401(k)(14)(C), as 

4 added by section 2, is amended— 

5 (1) by striking ‘‘applied without regard’’ and 

6 inserting ‘‘applied— 

7 ‘‘(I) without regard’’; 

8 (2) by striking the period at the end and insert9 ing ‘‘, and’’; and 

10 (3) by adding at the end the following new sub11 clause: 

12 ‘‘(II) by treating amounts de13 scribed in section 72(t)(7)(C) as 

14 qualified higher education expenses.’’. 

15 (c) EFFECTIVE DATE.—The amendment made by 

16 this section shall apply to distributions made after Decem17 ber 31, 2021. 

18 SEC. 4. EXCLUSION OF DISTRIBUTIONS FOR EDUCATIONAL 

19 EXPENSES. 

20 (a) IN GENERAL.—Section 402 of the Internal Rev21 enue Code of 1986 is amended by adding at the end the 

22 following new subsection: 

23 ‘‘(m) DISTRIBUTIONS FOR QUALIFIED EDUCATION

24 EXPENSES.— 


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1 ‘‘(1) IN GENERAL.—Gross income for the tax2 able year does not include— 

3 ‘‘(A) any distribution from a qualified cash 

4 or deferred arrangement (as defined in section 

5 401(k)(2)), an annuity contract described in 

6 section 403(b), or an eligible deferred com7 pensation plan described in section 457(b) 

8 which is maintained by an eligible employer de9 scribed in section 457(e)(1)(A), which is treated 

10 as made upon hardship of the employee by rea11 son of section 401(k)(14)(C), the last sentence 

12 of section 403(b)(11), or the last sentence of 

13 section 457(d)(1), or 

14 ‘‘(B) any distribution from an individual 

15 retirement account (as defined in section 

16 408(a)) to which section 72(t)(2)(E) applies. 

17 ‘‘(2) DISTRIBUTIONS MUST OTHERWISE BE IN18 CLUDIBLE.— 

19 ‘‘(A) IN GENERAL.—An amount shall be 

20 treated as described in paragraph (1) only to 

21 the extent that such amount would be includible 

22 in gross income without regard to such para23 graph. 

24 ‘‘(B) APPLICATION OF SECTION 72.—In de25 termining whether a distribution would be inVerDate Sep 11 2014 01:32 Oct 28, 2021 Jkt 029200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3081.IS S3081

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1 cludible in gross income but for this subsection, 

2 rules similar to the rules of subsection (l)(3)(B) 

3 shall apply (by taking into account all retire4 ment plans in which the taxpayer is a partici5 pant).’’. 

6 (b) COORDINATION WITH DEDUCTIONS AND CRED7 ITS.— 

8 (1) COORDINATION WITH AMERICAN OPPOR9 TUNITY AND LIFETIME LEARNING CREDITS.— 

10 (A) IN GENERAL.—Paragraph (2) of sec11 tion 25A(g) of the Internal Revenue Code of 

12 1986 is amended by redesignating subpara13 graph (C) as subparagraph (D), by striking 

14 ‘‘and’’ at the end of subparagraph (B), and by 

15 inserting after subparagraph (B) the following 

16 new subparagraph: 

17 ‘‘(C) a distribution from a qualified cash 

18 or deferred arrangement (as defined in section 

19 401(k)(2)), an annuity contract described in 

20 section 403(b), an eligible deferred compensa21 tion plan described in section 457(b) which is 

22 maintained by an eligible employer described in 

23 section 457(e)(1)(A), or an individual retire24 ment account (as defined in section 408(a)) 

25 which is excluded from gross income of the disVerDate Sep 11 2014 01:32 Oct 28, 2021 Jkt 029200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3081.IS S3081

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1 tributee under section 402(m) (other than any 

2 portion of such a distribution which is attrib3 utable to the repayment of a loan described in 

4 section 72(t)(7)(C)), and’’. 

5 (B) COORDINATION WITH WAIVER OF PEN6 ALTY.—Subparagraph (B) of section 72(t)(7) is 

7 amended by inserting ‘‘(without regard to sub8 paragraph (C) thereof)’’ before the period. 

9 (2) DEDUCTION FOR INTEREST ON EDUCATION

10 LOANS.—The first sentence of paragraph (1) of sec11 tion 221(e) of such Code is amended— 

12 (A) by striking ‘‘or’’; and 

13 (B) by inserting before the period at the 

14 end the following: ‘‘, or for any amount paid 

15 with a distribution which is excluded from gross 

16 income under section 402(m)’’. 

17 (c) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to distributions made after Decem19 ber 31, 2021. 

20 SEC. 5. MODIFICATION OF INCLUSION OF EMPLOYER STU21 DENT LOAN PAYMENTS IN EDUCATIONAL AS22 SISTANCE PROGRAMS. 

23 (a) IN GENERAL.—Subparagraph (B) of section 

24 127(c)(1) of the Internal Revenue Code of 1986 is amend25 ed to read as follows: 


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1 ‘‘(B) the payment, by an employer, of 

2 amounts in repayment of any loan made to the 

3 employee to assist the employee in attending an 

4 educational organization described in section 

5 170(b)(1)(A)(ii), and’’. 

6 (b) DENIAL OF DOUBLE BENEFIT.—Paragraph (1) 

7 of section 221(e) of the Internal Revenue Code of 1986, 

8 as amended by section 4, is further amended by striking 

9 ‘‘any indebtedness on a qualified education loan of the tax10 payer’’ and inserting ‘‘amounts in repayment of any loan 

11 described in section 127(c)(1)(B)’’. 

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

13 this section shall apply to taxable years beginning after 

14 December 31, 2021. 

15 SEC. 6. REPEAL OF CAP ON DEDUCTION FOR INTEREST ON 

16 EDUCATION LOANS. 

17 (a) IN GENERAL.—Section 221 of the Internal Rev18 enue Code of 1986 is amended by striking subsections (b) 

19 and (f). 

20 (b) CARRYOVER OF EXCESS INTEREST.—Section 221 

21 of the Internal Revenue Code of 1986, as so amended, 

22 is amended by inserting after subsection (a) the following 

23 new subsection: 

24 ‘‘(b) CARRYOVER.—If the amount of the deduction 

25 allowable under subsection (a) exceeds the taxable income 


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1 of the taxpayer for the taxable year (determined without 

2 regard to this section), then an amount equal to such ex3 cess shall be treated as interest paid by the taxpayer in 

4 the succeeding taxable year on a qualified education 

5 loan.’’. 

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

7 this section shall apply to taxable years beginning after 

8 the date of the enactment of this Act. 

9 SEC. 7. EMPLOYER ROTH CONTRIBUTIONS. 

10 (a) IN GENERAL.—Subsection (a) of section 402A of 

11 the Internal Revenue Code of 1986 is amended— 

12 (1) by striking ‘‘and’’ at the end of paragraph 

13 (1); 

14 (2) by redesignating paragraph (2) as para15 graph (3); and 

16 (3) by inserting after paragraph (1) the fol17 lowing new paragraph: 

18 ‘‘(2) in the case of a qualified cash or deferred 

19 arrangement (as defined in section 401(k)(2)), any 

20 designated Roth employer contribution made pursu21 ant to the arrangement shall be treated for purposes 

22 of this chapter in the same manner as contributions 

23 described in section 401(k)(3)(D)(ii), except that 

24 such contribution shall not be excludable from gross 

25 income, and’’. 


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1 (b) CONFORMING AMENDMENTS.— 

2 (1) Paragraph (1) of section 402A(b) of the In3 ternal Revenue Code of 1986 is amended— 

4 (A) by striking ‘‘may elect to make’’ and 

5 inserting ‘‘may elect— 

6 ‘‘(A) to make’’; 

7 (B) by striking the period at the end and 

8 inserting ‘‘, and’’; and 

9 (C) by adding at the end the following new 

10 subparagraph: 

11 ‘‘(B) in the case of a qualified cash or de12 ferred arrangement (as defined in section 

13 401(k)(2)), to have the employee’s employer 

14 make designated Roth employer contributions 

15 in lieu of all or a portion of the matching or 

16 nonelective contributions the employee is other17 wise eligible to receive under the arrange18 ment.’’. 

19 (2) Paragraph (2)(A) of section 402A(b) of 

20 such Code is amended by striking ‘‘of each em21 ployee’’ and inserting ‘‘and designated Roth em22 ployer contributions with respect to each employee’’. 

23 (3) Subparagraph (B) of section 402A(d)(2) of 

24 such Code is amended by inserting ‘‘, or elected to 

25 have made a designated Roth employer contribuVerDate Sep 11 2014 01:32 Oct 28, 2021 Jkt 029200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S3081.IS S3081

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1 tion,’’ after ‘‘designated Roth contribution’’ both 

2 places it appears in clauses (i) and (ii). 

3 (c) DESIGNATED ROTH EMPLOYER CONTRIBU4 TION.—Subsection (c) of section 402A of the Internal 

5 Revenue Code of 1986 is amended— 

6 (1) by inserting ‘‘AND DESIGNATED ROTH EM7 PLOYER CONTRIBUTIONS’’ after ‘‘DESIGNATED

8 ROTH CONTRIBUTIONS’’ in the heading, and 

9 (2) by adding at the end the following new 

10 paragraph: 

11 ‘‘(5) DESIGNATED ROTH EMPLOYER CONTRIBU12 TION.— 

13 ‘‘(A) IN GENERAL.—The term ‘designated 

14 Roth employer contribution’ means any con15 tribution described in subparagraph (B) made 

16 under a qualified cash or deferred arrangement 

17 (as defined in section 401(k)(2)) which— 

18 ‘‘(i) is excludable from gross income 

19 of an employee without regard to this sec20 tion, and 

21 ‘‘(ii) the employee designates (at such 

22 time and in such manner as the Secretary 

23 may prescribe) as not being so excludable. 


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1 ‘‘(B) CONTRIBUTIONS DESCRIBED.—The 

2 contributions described in this subparagraph 

3 are— 

4 ‘‘(i) matching contributions (as de5 fined in section 401(m)(4)(A)) which meet 

6 the requirements of subparagraphs (B) 

7 and (C) of section 401(k)(2), and 

8 ‘‘(ii) qualified nonelective contribu9 tions (within the meaning of section 

10 401(m)(4)(C)). 

11 ‘‘(C) DESIGNATION LIMITS.—The amount 

12 of matching contributions and qualified nonelec13 tive contributions which an employee may des14 ignate under subparagraph (A) shall not exceed 

15 the excess (if any) of— 

16 ‘‘(i) the maximum amount of such 

17 contributions excludable from gross income 

18 of the employee for the taxable year (with19 out regard to this section), over 

20 ‘‘(ii) the aggregate amount of such 

21 contributions with respect to the employee 

22 for the taxable year which the employee 

23 does not designate under subparagraph 

24 (A).’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to contributions made in taxable 

3 years beginning after December 31, 2021. 

4 SEC. 8. MAXIMUM CONTRIBUTIONS. 

5 (a) ELECTIVE DEFERRALS.— 

6 (1) IN GENERAL.—Subparagraph (B) of section 

7 402(g)(1) of the Internal Revenue Code of 1986 is 

8 amended by striking ‘‘$15,000’’ and inserting 

9 ‘‘$25,000’’. 

10 (2) COST-OF-LIVING ADJUSTMENT.—Paragraph 

11 (4) of section 402(g) of such Code is amended— 

12 (A) by striking ‘‘$15,000’’ and inserting 

13 ‘‘$25,000’’; 

14 (B) by striking ‘‘December 31, 2006’’ and 

15 inserting ‘‘December 31, 2022’’; and 

16 (C) by striking ‘‘July 1, 2005’’ and insert17 ing ‘‘July 1, 2021’’. 

18 (3) CONFORMING AMENDMENT.—Clause (ii) of 

19 section 402(g)(7)(A) of such Code is amended by 

20 striking ‘‘$15,000’’ and inserting ‘‘$25,000’’. 

21 (b) 457 PLANS.— 

22 (1) IN GENERAL.—Subparagraph (A) of section 

23 457(e)(15) of the Internal Revenue Code of 1986 is 

24 amended by striking ‘‘$15,000’’ and inserting 

25 ‘‘$25,000’’. 


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1 (2) COST-OF-LIVING ADJUSTMENT.—Subpara2 graph (B) of section 457(e)(15) of such Code is 

3 amended— 

4 (A) by striking ‘‘$15,000’’ and inserting 

5 ‘‘$25,000’’; 

6 (B) by striking ‘‘December 31, 2006’’ and 

7 inserting ‘‘December 31, 2022’’; and 

8 (C) by striking ‘‘July 1, 2005’’ and insert9 ing ‘‘July 1, 2021’’. 

10 (c) EMPLOYED INDIVIDUAL 401(k)S.—Subsection (k) 

11 of section 401 of the Internal Revenue Code of 1986 is 

12 amended by adding at the end the following new para13 graph: 

14 ‘‘(16) EMPLOYED INDIVIDUAL ARRANGE15 MENT.— 

16 ‘‘(A) IN GENERAL.—A cash or deferred ar17 rangement shall not be treated as failing to 

18 meet any requirement of this subsection solely 

19 because, under the arrangement, an employee 

20 may elect to make additional elective deferrals 

21 which are not subject to, and are not taken into 

22 account under, paragraph (3) to a separate ac23 count from other contributions made on behalf 

24 of the employee under the arrangement, if— 


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1 ‘‘(i) all employees eligible to partici2 pate in the arrangement are eligible to 

3 make such election, 

4 ‘‘(ii) the aggregate of all elective de5 ferrals made by the employee under the ar6 rangement does not exceed the limitation 

7 of section 402(g), and 

8 ‘‘(iii) no matching or nonelective con9 tributions may be made to such account or 

10 with respect to elective deferrals contrib11 uted to such account. 

12 ‘‘(B) DISTRIBUTION, ETC. RULES TO

13 APPLY.—The rules of this subsection, other 

14 than paragraph (3), shall apply to any account 

15 established under subparagraph (A). 

16 ‘‘(C) ELECTIVE DEFERRAL.—For purposes 

17 of this paragraph, the term ‘elective deferral’ 

18 means any employer contribution under a quali19 fied cash or deferred arrangement to the extent 

20 not includible in gross income for the taxable 

21 year under section 402(e)(3) (determined with22 out regard to section 402(g)).’’. 

23 (d) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to contributions made in taxable 

25 years beginning after December 31, 2021. 


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1 SEC. 9. DEDUCTION FOR QUALIFIED EDUCATION EX2 PENSES. 

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 is amended— 

5 (1) by redesignating section 224 as section 225; 

6 and 

7 (2) by inserting after section 223 the following 

8 new section: 

9 ‘‘SEC. 224. QUALIFIED EDUCATION EXPENSES. 

10 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi11 vidual, there shall be allowed as a deduction for the tax12 able year an amount equal to the qualified education ex13 penses paid or incurred during such taxable year for the 

14 taxpayer or any other individual. 

15 ‘‘(b) QUALIFIED EDUCATION EXPENSES.—For pur16 poses of this section, the term ‘qualified education ex17 penses’ means— 

18 ‘‘(1) qualified education expenses as defined in 

19 section 530(b)(2)(A), applied without regard to sub20 paragraph (B) of section 530(b)(2), and 

21 ‘‘(2) amounts paid in repayment of any loan 

22 made to an individual to assist the individual in at23 tending an educational organization described in sec24 tion 170(b)(1)(A)(ii). 


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1 ‘‘(c) DENIAL OF DOUBLE BENEFIT.—For purposes 

2 of subsection (a), the qualified education expenses with re3 spect to any taxpayer shall be reduced by— 

4 ‘‘(1) the amount of any distribution from a 

5 qualified cash or deferred arrangement (as defined 

6 in section 401(k)(2)), an annuity contract described 

7 in section 403(b), an eligible deferred compensation 

8 plan described in section 457(b) which is maintained 

9 by an eligible employer described in section 

10 457(e)(1)(A), or an individual retirement account 

11 (as defined in section 408(a)) which is excluded from 

12 gross income of the taxpayer under section 402(m) 

13 (other than any portion of such a distribution which 

14 is attributable to the repayment of a loan described 

15 in section 72(t)(7)(C)), and 

16 ‘‘(2) the amount of any such expenses taken 

17 into account in determining any credit or any other 

18 deduction under any other provision of this chapter. 

19 ‘‘(d) CARRYFORWARD OF UNUSED AMOUNT.—If any 

20 portion of the deduction allowed by subsection (a) for the 

21 taxable year is disallowed by reason of any limitation (in22 cluding the amount of income of the taxpayer), such por23 tion shall be treated as a deduction allowable under sub24 section (a) in the succeeding taxable year.’’. 


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1 (b) DEDUCTION ALLOWED ABOVE THE LINE.—Sub2 section (a) of section 62 of the Internal Revenue Code of 

3 1986 is amended by inserting after paragraph 21 the fol4 lowing new paragraph: 

5 ‘‘(22) QUALIFIED EDUCATION EXPENSES.—The 

6 deduction allowed by section 224.’’. 

7 (c) CLERICAL AMENDMENT.—The table of sections 

8 for part VII of subchapter B of chapter 1 of the Internal 

9 Revenue Code of 1986 is amended by striking the item 

10 relating to section 224 and by inserting after the item re11 lating to section 223 the following new items: 

‘‘Sec. 224. Qualified education expenses. 

‘‘Sec. 225. Cross reference.’’. 

12 (d) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning after 

14 December 31, 2021. 

Æ 


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