II

106TH CONGRESS

1ST SESSION S. 14

To amend the Internal Revenue Code of 1986 to expand the use of education

individual retirement accounts, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JANUARY 19, 1999

Mr. COVERDELL (for himself and Mr. TORRICELLI) 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 expand

the use of education individual retirement accounts, 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; AMENDMENT TO 1986 CODE.

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

5 ‘‘Education Savings Account and School Excellence Act

6 of 1999’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this title an amend9 ment or repeal is expressed in terms of an amendment

10 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2. MODIFICATIONS TO EDUCATION INDIVIDUAL RE4 TIREMENT ACCOUNTS.

5 (a) TAX-FREE EXPENDITURES FOR ELEMENTARY

6 AND SECONDARY SCHOOL EXPENSES.—

7 (1) IN GENERAL.—Section 530(b)(2) (defining

8 qualified higher education expenses) is amended to

9 read as follows:

10 ‘‘(2) QUALIFIED EDUCATION EXPENSES.—

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

12 education expenses’ means—

13 ‘‘(i) qualified higher education ex14 penses (as defined in section 529(e)(3));

15 and

16 ‘‘(ii) qualified elementary and second17 ary education expenses (as defined in para18 graph (4)).

19 Such expenses shall be reduced as provided in

20 section 25A(g)(2).

21 ‘‘(B) QUALIFIED STATE TUITION PRO22 GRAMS.—Such term shall include amounts paid

23 or incurred to purchase tuition credits or cer24 tificates, or to make contributions to an ac25 count, under a qualified State tuition program
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1 (as defined in section 529(b)) for the benefit of

2 the beneficiary of the account.’’.

3 (2) QUALIFIED ELEMENTARY AND SECONDARY

4 EDUCATION EXPENSES.—Section 530(b) (relating to

5 definitions and special rules) is amended by adding

6 at the end the following new paragraph:

7 ‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY

8 EDUCATION EXPENSES.—

9 ‘‘(A) IN GENERAL.—The term ‘qualified el10 ementary and secondary education expenses’

11 means—

12 ‘‘(i) expenses for tuition, fees, aca13 demic tutoring, special needs services,

14 books, supplies, computer equipment (in15 cluding related software and services), and

16 other equipment which are incurred in con17 nection with the enrollment or attendance

18 of the designated beneficiary of the trust

19 as an elementary or secondary school stu20 dent at a public, private, or religious

21 school; or

22 ‘‘(ii) expenses for room and board,

23 uniforms, transportation, and supple24 mentary items and services (including ex25 tended day programs) which are required
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1 or provided by a public, private, or reli2 gious school in connection with such enroll3 ment or attendance.

4 ‘‘(B) SPECIAL RULE FOR

5 HOMESCHOOLING.—Such term shall include ex6 penses described in subparagraph (A)(i) in con7 nection with education provided by

8 homeschooling if the requirements of any appli9 cable State or local law are met with respect to

10 such education.

11 ‘‘(C) SCHOOL.—The term ‘school’ means

12 any school which provides elementary education

13 or secondary education (kindergarten through

14 grade 12), as determined under State law.’’.

15 (3) SPECIAL RULES FOR APPLYING EXCLUSION

16 TO ELEMENTARY AND SECONDARY EXPENSES.—Sec17 tion 530(d)(2) (relating to distributions for qualified

18 higher education expenses) is amended by adding at

19 the end the following new subparagraph:

20 ‘‘(E) SPECIAL RULES FOR ELEMENTARY

21 AND SECONDARY EXPENSES.—

22 ‘‘(i) IN GENERAL.—The aggregate

23 amount of qualified elementary and sec24 ondary education expenses taken into ac25 count for purposes of this paragraph with
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1 respect to any education individual retire2 ment account for all taxable years shall not

3 exceed the sum of the aggregate contribu4 tions to such account for taxable years be5 ginning after December 31, 1998, and be6 fore January 1, 2003, and earnings on

7 such contributions.

8 ‘‘(ii) SPECIAL OPERATING RULES.—

9 For purposes of clause (i)—

10 ‘‘(I) the trustee of an education

11 individual retirement account shall

12 keep separate accounts with respect to

13 contributions and earnings described

14 in clause (i); and

15 ‘‘(II) if there are distributions in

16 excess of qualified elementary and sec17 ondary education expenses for any

18 taxable year, such excess distributions

19 shall be allocated first to contributions

20 and earnings not described in clause

21 (i).’’.

22 (4) CONFORMING AMENDMENTS.—Subsections

23 (b)(1) and (d)(2) of section 530 are each amended

24 by striking ‘‘higher’’ each place it appears in the

25 text and heading thereof.
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1 (b) MAXIMUM ANNUAL CONTRIBUTIONS.—

2 (1) IN GENERAL.—Section 530(b)(1)(A)(iii)

3 (defining education individual retirement account) is

4 amended by striking ‘‘$500’’ and inserting ‘‘the con5 tribution limit for such taxable year’’.

6 (2) CONTRIBUTION LIMIT.—Section 530(b) (re7 lating to definitions and special rules), as amended

8 by subsection (a)(2), is amended by adding at the

9 end the following new paragraph:

10 ‘‘(5) CONTRIBUTION LIMIT.—The term ‘con11 tribution limit’ means $500 ($2,000 in the case of

12 any taxable year beginning after December 31,

13 1998, and ending before January 1, 2003).’’.

14 (3) CONFORMING AMENDMENT.—Section

15 4973(e)(1)(A) is amended by striking ‘‘$500’’ and

16 inserting ‘‘the contribution limit (as defined in sec17 tion 530(b)(5)) for such taxable year’’.

18 (c) WAIVER OF AGE LIMITATIONS FOR CHILDREN

19 WITH SPECIAL NEEDS.—Section 530(b)(1) (defining edu20 cation individual retirement account) is amended by add21 ing at the end the following flush sentence:

22 ‘‘The age limitations in the preceding sentence shall

23 not apply to any designated beneficiary with special

24 needs (as determined under regulations prescribed

25 by the Secretary).’’.
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1 (d) CORPORATIONS PERMITTED TO CONTRIBUTE TO

2 ACCOUNTS.—Section 530(c)(1) (relating to reduction in

3 permitted contributions based on adjusted gross income)

4 is amended by striking ‘‘The maximum amount which a

5 contributor’’ and inserting ‘‘In the case of a contributor

6 who is an individual, the maximum amount the contribu7 tor’’.

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

9 this section shall apply to taxable years beginning after

10 December 31, 1998.

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