I

103D CONGRESS

1ST SESSION H. R. 2240

To amend the Internal Revenue Code of 1986 to promote savings for qualified

higher education expenses.

IN THE HOUSE OF REPRESENTATIVES

MAY 24, 1993

Mr. JACOBS (for himself and Mr. MCCRERY) introduced the following bill;

which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to promote

savings for qualified higher education expenses.

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 ‘‘Higher Education Sav5 ings Plan Act of 1993’’.

6 SEC. 2. PENALTY FREE WITHDRAWALS FROM ANNUITIES

7 FOR HIGHER EDUCATION EXPENSES.

8 (a) IN GENERAL.—Paragraph (2) of section 72(q) of

9 the Internal Revenue Code of 1986 (relating to 10-percent

10 penalty for premature distributions from annuity con-
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1 tracts) is amended by striking ‘‘or’’ at the end of subpara2 graph (I), by striking the period at the end of subpara3 graph (J) and inserting ‘‘, or’’, and by inserting after sub4 paragraph (J) the following new subparagraph:

5 ‘‘(K) which is a qualified higher education ex6 pense distribution (as defined in paragraph (4)).’’

7 (b) QUALIFIED HIGHER EDUCATION EXPENSE DIS8 TRIBUTION.—Subsection (q) of section 72 of such Code

9 is amended by adding at the end thereof the following new

10 paragraph:

11 ‘‘(4) QUALIFIED HIGHER EDUCATION EXPENSE

12 DISTRIBUTION.—

13 ‘‘(A) IN GENERAL.—For purposes of para14 graph (2)(K), the term ‘qualified higher edu15 cation expense distribution’ means any distribu16 tion from a designated higher education ex17 pense annuity to the taxpayer if such distribu18 tion is used within 90 days of the date of the

19 distribution to pay qualified tuition and related

20 expenses (as defined in section 117(b)) required

21 for the enrollment or attendance of such tax22 payer, the taxpayer’s spouse, or a child (as de23 fined in section 151(c)(3)) or grandchild of

24 such taxpayer at an eligible educational institu25 tion (as defined in section 135(c)(3)); except
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1 that such expenses shall be reduced by any

2 amount excluded from gross income under sec3 tion 135 by reason of such expenses.

4 ‘‘(B) DESIGNATED HIGHER EDUCATION

5 EXPENSE ANNUITY.—

6 ‘‘(i) IN GENERAL.—The term ‘des7 ignated higher education expense annuity’

8 means any annuity purchased after De9 cember 31, 1992, and designated for pur10 poses of this paragraph by the purchaser

11 at the time of purchase as an annuity to

12 which this paragraph applies.

13 ‘‘(ii) CERTAIN ANNUITIES RECEIVED

14 IN AN EXCHANGE NOT ELIGIBLE.—Such

15 term shall not include any annuity ac16 quired in an exchange to which section

17 1035 applies unless the annuity given up

18 by the taxpayer in the exchange was a des19 ignated higher education expense annuity.’’

20 (c) GIFT TAX TREATMENT.—Subsection (e) of sec21 tion 2503 of such Code is amended by adding at the end

22 thereof the following new paragraph:

23 ‘‘(3) TREATMENT OF PREMIUMS PAID UNDER

24 DESIGNATED HIGHER EDUCATION EXPENSE ANNU25 ITIES.—
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1 ‘‘(A) IN GENERAL.—Any premium paid for

2 a designated higher education expense annuity

3 shall not be treated as transfer of property by

4 gift for purposes of this chapter.

5 ‘‘(B) RECAPTURE RULES.—If any pre6 mium paid by any person for a designated high7 er education expense annuity is not treated as

8 a taxable gift solely by reason of subparagraph

9 (A)—

10 ‘‘(i) LIFETIME DISTRIBUTIONS NOT

11 USED FOR EDUCATIONAL PURPOSES.—Any

12 disqualified lifetime distribution from the

13 portion of any annuity attributable to such

14 premium shall be treated as a transfer by

15 gift by such person.

16 ‘‘(ii) INCLUSION IN GROSS ESTATE.—

17 The gross estate of such person shall in18 clude the value (as of the date of the dece19 dent’s death or applicable valuation date

20 set forth in section 2032) of the portion of

21 any annuity attributable to such premium.

22 ‘‘(C) DISQUALIFIED LIFETIME DISTRIBU23 TION.—For purposes of subparagraph (B), the

24 term ‘disqualified lifetime distribution’ means

25 any distribution which is not a qualified higher
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1 education distribution and which is made dur2 ing the life of the person referred to in subpara3 graph (B) to or for the benefit of another per4 son.

5 ‘‘(D) OTHER DEFINITIONS.—For purposes

6 of this paragraph, the terms ‘designated higher

7 education expense annuity’ and ‘qualified higher

8 education expense distribution’ have the respec9 tive meanings given such terms by section

10 72(q)(4).’’

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

12 this section shall take effect on January 1, 1994.

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