I 

116TH CONGRESS 

2D SESSION H. R. 8787 

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 HOUSE OF REPRESENTATIVES 

NOVEMBER 19, 2020 

Mrs. LESKO introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and Labor, for a period to be subsequently determined by the 

Speaker, in each case for consideration of such provisions as fall within 

the jurisdiction of the committee concerned 

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 ‘‘Student Aid and Tax 

5 Advantaged Accounts Reform Act of 2020’’ or the ‘‘STAR 

6 Act of 2020’’. 


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1 SEC. 2. TREATMENT OF CERTAIN QUALIFIED EDUCATION 

2 BENEFITS FOR FINANCIAL AID PURPOSES. 

3 Section 480(f) of the Higher Education Act of 1965 

4 (20 U.S.C. 1087vv(f)) is amended— 

5 (1) by amending subparagraph (B) of para6 graph (3) to read as follows: 

7 ‘‘(B) the parent if the student is a depend8 ent student, regardless of whether the owner of 

9 the account is the student or the parent, except 

10 that the value of a qualified education benefit 

11 with a designated beneficiary other than the de12 pendent student applying for aid under this 

13 title shall not be considered an asset of the par14 ent.’’; and 

15 (2) in paragraph (4)— 

16 (A) in subparagraph (A), by striking 

17 ‘‘and’’ at the end; and 

18 (B) by striking subparagraph (B) inserting 

19 the following: 

20 ‘‘(B) in the case of a program in which 

21 contributions are made to an account that is es22 tablished for the purpose of meeting the quali23 fied higher education expenses of an inde24 pendent student who is the designated bene25 ficiary of the account, the current balance of 

26 such account; and 


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1 ‘‘(C) in the case of a program in which 

2 contributions are made to an account that is es3 tablished for the purpose of meeting the quali4 fied higher education expenses of a dependent 

5 student who is the designated beneficiary of the 

6 account, the highest monthly balance of such 

7 account in the period of four years preceding 

8 the date of application for aid under this title.’’. 

9 SEC. 3. WITHDRAWALS FOR HIGHER EDUCATION EX10 PENSES. 

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

12 401(k) of the Internal Revenue Code of 1986 is amended 

13 by adding at the end the following new subparagraph: 

14 ‘‘(C) DISTRIBUTIONS FOR QUALIFIED

15 HIGHER EDUCATION EXPENSES.— 

16 ‘‘(i) IN GENERAL.—A distribution 

17 shall be treated as made upon hardship of 

18 the employee to the extent that the aggre19 gate amount of such distributions during 

20 the taxable year does not exceed the lesser 

21 of— 

22 ‘‘(I) the amount paid by the tax23 payer for qualified higher education 

24 expenses during such taxable year, or 

25 ‘‘(II) $5,250. 


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1 ‘‘(ii) DISTRIBUTION MUST BE OTHER2 WISE DISALLOWED.—Clause (i) shall not 

3 apply to any distribution which is permis4 sible under paragraph (2)(B)(i) (including 

5 distributions which would be treated as 

6 made upon hardship of the employee with7 out regard to this subparagraph). 

8 ‘‘(iii) NO REQUIREMENT TO DEM9 ONSTRATE HARDSHIP.—Clause (i) shall 

10 apply without regard to any requirement to 

11 demonstrate financial need or hardship, or 

12 to demonstrate that other assets are not 

13 available to pay the qualified higher edu14 cation expenses. 

15 ‘‘(iv) ADDITIONAL TAX UNDER SEC16 TION 72(t) NOT TO APPLY.—No tax shall 

17 be imposed under section 72(t) on any 

18 amount treated as a hardship distribution 

19 by reason of clause (i). 

20 ‘‘(v) QUALIFIED HIGHER EDUCATION

21 EXPENSES.—For purposes of this subpara22 graph, the term ‘qualified higher education 

23 expenses’ has the meaning given such term 

24 by section 72(t)(7).’’. 


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

2 403(b) of the Internal Revenue Code of 1986 is amended 

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

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

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

6 extent that the aggregate amount of such distributions 

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

8 amount paid by the taxpayer for qualified higher edu9 cation expenses during such taxable year, or $5,250.’’. 

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

11 the Internal Revenue Code of 1986 is amended by adding 

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

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

14 the expenses are unforeseen), a distribution shall be treat15 ed as made by reason of unforeseen emergency to the ex16 tent that the aggregate amount of such distributions dur17 ing the taxable year does not exceed the lesser of the 

18 amount paid by the taxpayer for qualified higher edu19 cation expenses during such taxable year, or $5,250.’’. 

20 (d) EFFECTIVE DATE.—The amendment made by 

21 this section shall apply to distributions made after the 

22 date of the enactment of this Act. 


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1 SEC. 4. PENALTY-FREE WITHDRAWALS FROM IRAS FOR 

2 STUDENT LOAN EXPENSES OF TAXPAYERS, 

3 SPOUSES, CHILDREN, AND GRANDCHILDREN. 

4 (a) IN GENERAL.—Paragraph (7) of section 72(t) of 

5 the Internal Revenue Code of 1986 is amended by adding 

6 at the end the following new subparagraph: 

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

8 include amounts paid in repayment of any loan 

9 made to an individual described in subpara10 graph (A) to assist the individual in attending 

11 an educational organization described in section 

12 170(b)(1)(A)(ii).’’. 

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

14 this section shall apply to distributions made after the 

15 date of the enactment of this Act. 

16 SEC. 5. EXCLUSION OF DISTRIBUTIONS FOR EDUCATIONAL 

17 EXPENSES. 

18 (a) IN GENERAL.—Section 402 of the Internal Rev19 enue Code of 1986 is amended by adding at the end the 

20 following new subsection: 

21 ‘‘(m) DISTRIBUTIONS FOR QUALIFIED HIGHER EDU22 CATION EXPENSES.— 

23 ‘‘(1) IN GENERAL.—Gross income for the tax24 able year does not include— 

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

26 or deferred arrangement (as defined in section 


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1 401(k)(2)), an annuity contract described in 

2 section 403(b), or an eligible deferred com3 pensation plan described in section 457(b) 

4 which is maintained by an eligible employer de5 scribed in section 457(e)(1)(A), which is treated 

6 as made upon hardship of the employee by rea7 son of section 401(k)(14)(C), the last sentence 

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

9 section 457(d)(1), or 

10 ‘‘(B) any distribution from an individual 

11 retirement account (as defined in section 

12 408(a)) to which section 72(t)(2)(E) applies. 

13 ‘‘(2) DISTRIBUTIONS MUST OTHERWISE BE IN14 CLUDIBLE.— 

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

16 treated as described in paragraph (1) only to 

17 the extent that such amount would be includible 

18 in gross income without regard to such para19 graph. 

20 ‘‘(B) APPLICATION OF SECTION 72.—In de21 termining whether a distribution would be in22 cludible in gross income but for this subsection, 

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

24 shall apply (by taking into account all retireVerDate Sep 11 2014 21:55 Nov 29, 2020 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H8787.IH H8787

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1 ment plans in which the taxpayer is a partici2 pant).’’. 

3 (b) COORDINATION WITH DEDUCTIONS AND CRED4 ITS.— 

5 (1) COORDINATION WITH AMERICAN OPPOR6 TUNITY AND LIFETIME LEARNING CREDITS.— 

7 (A) IN GENERAL.—Paragraph (2) of sec8 tion 25A(g) of the Internal Revenue Code of 

9 1986 is amended by redesignating subpara10 graph (C) as subparagraph (D), by striking 

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

12 inserting after subparagraph (B) the following 

13 new subparagraph: 

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

15 or deferred arrangement (as defined in section 

16 401(k)(2)), an annuity contract described in 

17 section 403(b), an eligible deferred compensa18 tion plan described in section 457(b) which is 

19 maintained by an eligible employer described in 

20 section 457(e)(1)(A), or an individual retire21 ment account (as defined in section 408(a)) 

22 which is excluded from gross income of the dis23 tributee under section 402(m) (other than any 

24 portion of such a distribution which is attribVerDate Sep 11 2014 21:55 Nov 29, 2020 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H8787.IH H8787

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1 utable to the repayment of a loan described in 

2 section 72(t)(7)(C)), and’’. 

3 (B) COORDINATION WITH WAIVER OF PEN4 ALTY.—Subparagraph (B) of section 72(t)(7) is 

5 amended by inserting ‘‘(without regard to sub6 paragraph (C) thereof)’’ before the period. 

7 (2) DEDUCTION FOR INTEREST ON EDUCATION

8 LOANS.—Paragraph (1) of section 221(e) of such 

9 Code is amended by inserting before the period at 

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

11 with a distribution which is excluded from gross in12 come under section 402(m)’’. 

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

14 this section shall apply to distributions made after the 

15 date of the enactment of this Act. 

16 SEC. 6. INCLUSION OF EMPLOYER STUDENT LOAN PAY17 MENTS IN EDUCATIONAL ASSISTANCE PRO18 GRAMS. 

19 (a) IN GENERAL.—Paragraph (1) of section 127(c) 

20 of the Internal Revenue Code of 1986 is amended— 

21 (1) by striking ‘‘and’’ at the end of subpara22 graph (A), 

23 (2) by adding ‘‘and’’ at the end of subpara24 graph (B), and 


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1 (3) by inserting after subparagraph (B) the fol2 lowing new subparagraph: 

3 ‘‘(C) the payment, by an employer, of 

4 amounts in repayment of any loan made to the 

5 employee to assist the employee in attending an 

6 educational organization described in section 

7 170(b)(1)(A)(ii),’’. 

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

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

10 as amended by section 4, is further amended by inserting 

11 ‘‘which is excluded from gross income under section 127 

12 or is’’ after ‘‘or for any amount’’. 

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

14 this section shall apply to taxable years beginning after 

15 the date of the enactment of this Act. 

16 SEC. 7. REPEAL OF CAP ON DEDUCTION FOR INTEREST ON 

17 EDUCATION LOANS. 

18 (a) IN GENERAL.—Section 221 of the Internal Rev19 enue Code of 1986 is amended by striking subsections (b) 

20 and (f). 

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

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

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

24 new subsection: 


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

2 allowable under subsection (a) exceeds the taxable income 

3 of the taxpayer for the taxable year (determined without 

4 regard to this section), then an amount equal to such ex5 cess shall be treated as interest paid by the taxpayer in 

6 the succeeding taxable year on a qualified education 

7 loan.’’. 

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

9 this section shall apply to taxable years beginning after 

10 the date of the enactment of this Act. 

11 SEC. 8. EMPLOYER ROTH CONTRIBUTIONS. 

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

13 the Internal Revenue Code of 1986 is amended— 

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

15 (1), 

16 (2) by redesignating paragraph (2) as para17 graph (3), and 

18 (3) by inserting after paragraph (1) the fol19 lowing new paragraph: 

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

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

22 designated Roth employer contribution made pursu23 ant to the arrangement shall be treated for purposes 

24 of this chapter in the same manner as contributions 

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


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1 such contribution shall not be excludable from gross 

2 income, and’’. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Paragraph (1) of section 402A(b) of the In5 ternal Revenue Code of 1986 is amended— 

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

7 inserting ‘‘may elect— 

8 ‘‘(A) to make’’, 

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

10 inserting ‘‘, and’’, and 

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

12 subparagraph: 

13 ‘‘(B) in the case of a qualified cash or de14 ferred arrangement (as defined in section 

15 401(k)(2)), to have the employee’s employer 

16 make designated Roth employer contributions 

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

18 nonelective contributions the employee is other19 wise eligible to receive under the arrange20 ment.’’. 

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

22 such Code is amended by striking ‘‘of each em23 ployee’’ and inserting ‘‘and designated Roth em24 ployer contributions with respect to each employee’’. 


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

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

3 have made a designated Roth employer contribu4 tion,’’ after ‘‘designated Roth contribution’’ both 

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

6 (c) DESIGNATED ROTH EMPLOYER CONTRIBU7 TION.—Subsection (c) of section 402A of the Internal 

8 Revenue Code of 1986 is amended— 

9 (1) by inserting ‘‘AND DESIGNATED ROTH EM10 PLOYER CONTRIBUTIONS’’ after ‘‘DESIGNATED

11 ROTH CONTRIBUTIONS’’ in the heading, and 

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

13 paragraph: 

14 ‘‘(5) DESIGNATED ROTH EMPLOYER CONTRIBU15 TION.— 

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

17 Roth employer contribution’ means any con18 tribution described in subparagraph (B) made 

19 under a qualified cash or deferred arrangement 

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

21 ‘‘(i) is excludable from gross income 

22 of an employee without regard to this sec23 tion, and 


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

2 time and in such manner as the Secretary 

3 may prescribe) as not being so excludable. 

4 ‘‘(B) CONTRIBUTIONS DESCRIBED.—The 

5 contributions described in this subparagraph 

6 are— 

7 ‘‘(i) matching contributions (as de8 fined in section 401(m)(4)(A)) which meet 

9 the requirements of subparagraphs (B) 

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

11 ‘‘(ii) qualified nonelective contribu12 tions (within the meaning of section 

13 401(m)(4)(C)). 

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

15 of matching contributions and qualified nonelec16 tive contributions which an employee may des17 ignate under subparagraph (A) shall not exceed 

18 the excess (if any) of— 

19 ‘‘(i) the maximum amount of such 

20 contributions excludable from gross income 

21 of the employee for the taxable year (with22 out regard to this section), over 

23 ‘‘(ii) the aggregate amount of such 

24 contributions with respect to the employee 

25 for the taxable year which the employee 


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1 does not designate under subparagraph 

2 (A).’’. 

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

4 this section shall apply to contributions made in taxable 

5 years beginning after the date of the enactment of this 

6 Act. 

7 SEC. 9. MAXIMUM CONTRIBUTIONS. 

8 (a) ELECTIVE DEFERRALS.— 

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

10 402(g)(1) of the Internal Revenue Code of 1986 is 

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

12 ‘‘$25,000’’. 

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

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

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

16 ‘‘$25,000’’, 

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

18 inserting ‘‘December 31, 2020’’, and 

19 (C) by striking ‘‘July 1, 2005’’ and insert20 ing ‘‘July 1, 2019’’. 

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

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

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

24 (b) 457 PLANS.— 


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

2 457(e)(15) of the Internal Revenue Code of 1986 is 

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

4 ‘‘$25,000’’. 

5 (2) COST-OF-LIVING ADJUSTMENT.—Subpara6 graph (B) of section 457(e)(15) of such Code is 

7 amended— 

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

9 ‘‘$25,000’’, 

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

11 inserting ‘‘December 31, 2020’’, and 

12 (C) by striking ‘‘July 1, 2005’’ and insert13 ing ‘‘July 1, 2019’’. 

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

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

16 amended by adding at the end the following new para17 graph: 

18 ‘‘(15) EMPLOYED INDIVIDUAL ARRANGE19 MENT.— 

20 ‘‘(A) IN GENERAL.—A cash or deferred ar21 rangement shall not be treated as failing to 

22 meet any requirement of this subsection solely 

23 because, under the arrangement, an employee 

24 may elect to make additional elective deferrals 

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


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1 account under, paragraph (3) to a separate ac2 count from other contributions made on behalf 

3 of the employee under the arrangement, if— 

4 ‘‘(i) all employees eligible to partici5 pate in the arrangement are eligible to 

6 make such election, 

7 ‘‘(ii) the aggregate of all elective de8 ferrals made by the employee under the ar9 rangement does not exceed the limitation 

10 of section 402(g), and 

11 ‘‘(iii) no matching or nonelective con12 tributions may be made to such account or 

13 with respect to elective deferrals contrib14 uted to such account. 

15 ‘‘(B) DISTRIBUTION, ETC. RULES TO

16 APPLY.—The rules of this subsection, other 

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

18 established under subparagraph (A). 

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

20 of this paragraph, the term ‘elective deferral’ 

21 means any employer contribution under a quali22 fied cash or deferred arrangement to the extent 

23 not includible in gross income for the taxable 

24 year under section 402(e)(3) (determined with25 out regard to section 402(g)).’’. 


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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 the date of the enactment of this 

4 Act. 

Æ 


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