II 

110TH CONGRESS 

1ST SESSION S. 141 

To amend the Internal Revenue Code of 1986 to permanently increase the 

maximum annual contribution allowed to be made to Coverdell education 

savings accounts, and to provide for a deduction for contributions to 

education savings accounts. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 4, 2007 

Ms. CANTWELL 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 permanently 

increase the maximum annual contribution allowed to 

be made to Coverdell education savings accounts, and 

to provide for a deduction for contributions to education 

savings accounts. 

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 ‘‘The College Savings 

5 Act of 2007’’. 


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1 SEC. 2. INCREASE IN MAXIMUM ANNUAL CONTRIBUTION 

2 FOR COVERDELL EDUCATION SAVINGS AC3 COUNTS. 

4 (a) IN GENERAL.—Section 530(b)(1)(A)(iii) of the 

5 Internal Revenue Code of 1986 (defining Coverdell edu6 cation savings account) is amended by striking ‘‘$2,000’’ 

7 and inserting ‘‘$5,000’’. 

8 (b) CONFORMING AMENDMENT.—Section 

9 4973(e)(1)(A) of the Internal Revenue Code of 1986 is 

10 amended by striking ‘‘$2,000’’ and inserting ‘‘$5,000’’. 

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2006. 

14 (d) PERMANENT EXTENSION OF MODIFICATIONS.— 

15 Section 901 of the Economic Growth and Tax Relief Rec16 onciliation Act of 2001 (relating to sunset provisions) shall 

17 not apply to section 401 of such Act (relating to modifica18 tions to education individial retirement accounts). 

19 SEC. 3. EDUCATION SAVINGS ACCOUNTS. 

20 (a) DEDUCTION FOR CONTRIBUTIONS.—Part VII of 

21 subchapter B of chapter 1 of the Internal Revenue Code 

22 of 1986 (relating to additional itemized deductions for in23 dividuals) is amended by redesignating section 224 as sec24 tion 225 and inserting after section 223 the following new 

25 section: 


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1 ‘‘SEC. 224. EDUCATION SAVINGS. 

2 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi3 vidual, there shall be allowed as a deduction an amount 

4 equal to the amount of contributions made by such indi5 vidual to an education savings account during the taxable 

6 year. 

7 ‘‘(b) DEFINITIONS.— 

8 ‘‘(1) EDUCATION SAVINGS ACCOUNT.—The 

9 term ‘education savings account’ means a trust cre10 ated or organized in the United States exclusively 

11 for the purpose of paying the qualified education ex12 penses of an individual who is the designated bene13 ficiary of the trust (and designated as an education 

14 savings account at the time created or organized), 

15 but only if the written governing instrument creating 

16 the trust meets the following requirements: 

17 ‘‘(A) No contribution will be accepted— 

18 ‘‘(i) unless it is in cash, 

19 ‘‘(ii) after the date on which such ben20 eficiary attains age 18, or 

21 ‘‘(iii) except in the case of rollover 

22 contributions described in subsection 

23 (e)(4), if such contribution would result in 

24 aggregate contributions for the taxable 

25 year exceeding $5,000. 


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1 ‘‘(B) The trustee is a bank (as defined in 

2 section 408(n)) or another person who dem3 onstrates to the satisfaction of the Secretary 

4 that the manner in which that person will ad5 minister the trust will be consistent with the re6 quirements of this section or who has so dem7 onstrated with respect to any individual retire8 ment plan or any Coverdell education savings 

9 account. 

10 ‘‘(C) No part of the trust assets will be in11 vested in life insurance contracts. 

12 ‘‘(D) The assets of the trust shall not be 

13 commingled with other property except in a 

14 common trust fund or common investment 

15 fund. 

16 ‘‘(E) Except as provided in subsection 

17 (e)(6), any balance to the credit of the des18 ignated beneficiary on the date on which the 

19 beneficiary attains age 30 shall be distributed 

20 within 30 days after such date to the bene21 ficiary or, if the beneficiary dies before attain22 ing age 30, shall be distributed within 30 days 

23 after the date of death of such beneficiary. 

24 ‘‘(F) The age limitations in subparagraphs 

25 (A)(ii) and (E), and paragraphs (4) and (5) of 


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1 subsection (e), shall not apply to any designated 

2 beneficiary with special needs (as determined 

3 under regulations prescribed by the Secretary). 

4 ‘‘(2) QUALIFIED EDUCATION EXPENSES.—The 

5 term ‘qualified education expenses’ has the meaning 

6 given such term in section 530(b)(2). 

7 ‘‘(3) CERTAIN RULES TO APPLY.—Rules similar 

8 to the following rules shall apply for purposes of this 

9 section: 

10 ‘‘(A) Section 219(d)(2) (relating to no de11 duction for rollovers), 

12 ‘‘(B) Section 530(b)(5) (relating to time 

13 when contributions deemed made), 

14 ‘‘(C) Section 530(f) (relating to community 

15 property laws), 

16 ‘‘(D) Section 530(g) (relating to custodial 

17 accounts), and 

18 ‘‘(E) Section 530(h) (relating to reports). 

19 ‘‘(c) REDUCTION IN PERMITTED CONTRIBUTION

20 BASED ON ADJUSTED GROSS INCOME.— 

21 ‘‘(1) IN GENERAL.—The maximum amount 

22 which a contributor could otherwise make to an ac23 count under this section shall be reduced by an 

24 amount which bears the same ratio to such max25 imum amount as— 


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1 ‘‘(A) the excess of— 

2 ‘‘(i) the contributor’s modified ad3 justed gross income for such taxable year, 

4 over 

5 ‘‘(ii) $95,000 ($190,000 in the case of 

6 a joint return), bears to 

7 ‘‘(B) $15,000 ($30,000 in the case of a 

8 joint return). 

9 ‘‘(2) MODIFIED ADJUSTED GROSS INCOME.— 

10 For purposes of paragraph (1), the term ‘modified 

11 adjusted gross income’ means the adjusted gross in12 come of the taxpayer for the taxable year increased 

13 by any amount excluded from gross income under 

14 section 911, 931, or 933. 

15 ‘‘(d) TAX TREATMENT OF ACCOUNTS.— 

16 ‘‘(1) IN GENERAL.—An education savings ac17 count is exempt from taxation under this subtitle 

18 unless such account has ceased to be an education 

19 savings account. Notwithstanding the preceding sen20 tence, any such account is subject to the taxes im21 posed by section 511 (relating to imposition of tax 

22 on unrelated business income of charitable, etc. or23 ganizations). 

24 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 

25 to the rules of paragraphs (2) and (4) of section 


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1 408(e) shall apply to education savings accounts, 

2 and any amount treated as distributed under such 

3 rules shall be treated as not used to pay qualified 

4 education expenses. 

5 ‘‘(e) TREATMENT OF DISTRIBUTIONS.— 

6 ‘‘(1) IN GENERAL.—Any distribution shall be 

7 includible in the gross income of the distributee in 

8 the manner as provided in section 72. 

9 ‘‘(2) SPECIAL RULES FOR APPLYING ESTATE

10 AND GIFT TAXES WITH RESPECT TO ACCOUNT.— 

11 Rules similar to the rules of paragraphs (2), (4), 

12 and (5) of section 529(c) shall apply for purposes of 

13 this section. 

14 ‘‘(3) ADDITIONAL TAX FOR DISTRIBUTIONS NOT

15 USED FOR EDUCATIONAL EXPENSES.— 

16 ‘‘(A) IN GENERAL.—The tax imposed by 

17 this chapter for any taxable year on any tax18 payer who receives a payment or distribution 

19 from an education savings account which is in 

20 excess of the qualified education expenses of the 

21 designated beneficiary during the taxable year 

22 shall be increased by 10 percent of the amount 

23 of such excess. 


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1 ‘‘(B) EXCEPTIONS.—Subparagraph (A) 

2 shall not apply if the payment or distribution 

3 is— 

4 ‘‘(i) made to a beneficiary (or to the 

5 estate of the designated beneficiary) on or 

6 after the death of the designated bene7 ficiary, 

8 ‘‘(ii) attributable to the designated 

9 beneficiary’s being disabled (within the 

10 meaning of section 72(m)(7)), 

11 ‘‘(iii) made on account of a scholar12 ship, allowance, or payment described in 

13 section 25A(g)(2) received by the account 

14 holder to the extent the amount of the pay15 ment or distribution does not exceed the 

16 amount of the scholarship, allowance, or 

17 payment, or 

18 ‘‘(iv) made on account of the attend19 ance of the designated beneficiary at the 

20 United States Military Academy, the 

21 United States Naval Academy, the United 

22 States Air Force Academy, the United 

23 States Coast Guard Academy, or the 

24 United States Merchant Marine Academy, 

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1 ment or distribution does not exceed the 

2 costs of advanced education (as defined by 

3 section 2005(e)(3) of title 10, United 

4 States Code, as in effect on the date of the 

5 enactment of this section) attributable to 

6 such attendance. 

7 ‘‘(C) CONTRIBUTIONS RETURNED BEFORE

8 CERTAIN DATE.—Subparagraph (A) shall not 

9 apply to the distribution of any contribution 

10 made during a taxable year on behalf of the 

11 designated beneficiary if— 

12 ‘‘(i) such distribution is made before 

13 the first day of the sixth month of the tax14 able year following the taxable year, and 

15 ‘‘(ii) such distribution is accompanied 

16 by the amount of net income attributable 

17 to such excess contribution. 

18 Any net income described in clause (ii) shall be 

19 included in gross income for the taxable year in 

20 which such excess contribution was made. 

21 ‘‘(4) ROLLOVER CONTRIBUTIONS.—Paragraph 

22 (1) shall not apply to any amount paid or distrib23 uted from an education savings account to the ex24 tent that the amount received is paid, not later than 

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1 tribution, into another education savings account for 

2 the benefit of the same beneficiary or a member of 

3 the family (within the meaning of section 529(e)(2)) 

4 of such beneficiary who has not attained age 30 as 

5 of such date. The preceding sentence shall not apply 

6 to any payment or distribution if it applied to any 

7 prior payment or distribution during the 12-month 

8 period ending on the date of the payment or dis9 tribution. 

10 ‘‘(5) CHANGE IN BENEFICIARY.—Any change in 

11 the beneficiary of an education savings account shall 

12 not be treated as a distribution for purposes of para13 graph (1) if the new beneficiary is a member of the 

14 family (as so defined) of the old beneficiary and has 

15 not attained age 30 as of the date of such change. 

16 ‘‘(6) SPECIAL RULES FOR DEATH AND DI17 VORCE.—Rules similar to the rules of paragraphs 

18 (7) and (8) of section 220(f) shall apply. In applying 

19 the preceding sentence, members of the family (as so 

20 defined) of the designated beneficiary shall be treat21 ed in the same manner as the spouse under such 

22 paragraph (8). 

23 ‘‘(7) DEEMED DISTRIBUTION ON REQUIRED

24 DISTRIBUTION DATE.—In any case in which a dis25 tribution is required under subsection (b)(1)(E), any 


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1 balance to the credit of a designated beneficiary as 

2 of the close of the 30-day period referred to in such 

3 subsection for making such distribution shall be 

4 deemed distributed at the close of such period.’’. 

5 (b) TAX ON EXCESS CONTRIBUTIONS.— 

6 (1) IN GENERAL.—Subsection (a) of section 

7 4973 of the Internal Revenue Code of 1986 (relating 

8 to tax on excess contributions to certain tax-favored 

9 accounts and annuities) is amended by striking ‘‘or’’ 

10 at the end of paragraph (4), by inserting ‘‘or’’ at the 

11 end of paragraph (5), and by inserting after para12 graph (5) the following new paragraph: 

13 ‘‘(6) an education savings account (as defined 

14 in section 224),’’. 

15 (2) EXCESS CONTRIBUTION.—Section 4973 of 

16 such Code is amended by adding at the end the fol17 lowing new subsection: 

18 ‘‘(h) EXCESS CONTRIBUTIONS TO EDUCATION SAV19 INGS ACCOUNTS.—For purposes of this section— 

20 ‘‘(1) IN GENERAL.—In the case of education 

21 savings accounts maintained for the benefit of any 

22 one beneficiary, the term ‘excess contributions’ 

23 means the sum of— 

24 ‘‘(A) the amount by which the amount con25 tributed for the taxable year to such accounts 


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1 exceeds $5,000 (or, if less, the sum of the max2 imum amounts permitted to be contributed 

3 under section 224(c) by the contributors to 

4 such accounts for such year); and 

5 ‘‘(B) the amount determined under this 

6 subsection for the preceding taxable year, re7 duced by the sum of— 

8 ‘‘(i) the distributions out of the ac9 counts for the taxable year (other than dis10 tributions described in section 224(e)(4)); 

11 and 

12 ‘‘(ii) the excess (if any) of the max13 imum amount which may be contributed to 

14 the accounts for the taxable year over the 

15 amount contributed to the accounts for the 

16 taxable year. 

17 ‘‘(2) SPECIAL RULES.—For purposes of para18 graph (1), the following contributions shall not be 

19 taken into account: 

20 ‘‘(A) Any contribution which is distributed 

21 out of the education savings account in a dis22 tribution to which section 224(e)(3)(C) applies. 

23 ‘‘(B) Any rollover contribution.’’. 

24 (c) FAILURE TO PROVIDE REPORTS ON EDUCATION

25 SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) 


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1 of the Internal Revenue Code of 1986 (relating to failure 

2 to provide reports on individual retirement accounts or an3 nuities) is amended by striking ‘‘and’’ at the end of sub4 paragraph (D), by striking the period at the end of sub5 paragraph (E) and inserting ‘‘, and’’, and by inserting 

6 after subparagraph (E) the following new subparagraph: 

7 ‘‘(F) section 224(b)(3)(E) (relating to edu8 cation savings accounts).’’. 

9 (d) CLERICAL AMENDMENT.—The table of section 

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

11 Revenue Code of 1986 is amended by striking the item 

12 relating to section 224 and inserting the following new 

13 items: 

‘‘Sec. 224. Education savings. 

‘‘Sec. 225. Cross reference.’’. 

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

15 this section shall apply to contributions made in taxable 

16 years beginning after December 31, 2006. 

Æ 


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