I
107TH CONGRESS
1ST SESSION
H. R. 1308
To amend the Internal Revenue Code of 1986 to allow tax-free expenditures
from education individual retirement accounts for elementary and sec-
ondary school expenses, to increase the maximum annual amount of
contributions to such accounts, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 29, 2001
Mr. HULSHOF (for himself and Mr. BISHOP) 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 allow tax-
free expenditures from education individual retirement
accounts for elementary and secondary school expenses,
to increase the maximum annual amount of contributions
to such accounts, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Education Savings and School Excellence Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. MODIFICATIONS TO EDUCATION INDIVIDUAL RE-
TIREMENT ACCOUNTS.
(a) MAXIMUM ANNUAL CONTRIBUTIONS.—
(1) IN
GENERAL.—Section 530(b)(1)(A)(iii)
(defining education individual retirement account) is
amended 
by 
striking 
‘‘$500’’ 
and 
inserting
‘‘$2,000’’.
(2) 
CONFORMING
AMENDMENT.—Section
4973(e)(1)(A) is amended by striking ‘‘$500’’ and
inserting ‘‘$2,000’’.
(b) TAX-FREE EXPENDITURES FOR ELEMENTARY
AND SECONDARY SCHOOL EXPENSES.—
(1) IN GENERAL.—Section 530(b)(2) (defining
qualified higher education expenses) is amended to
read as follows:
‘‘(2) QUALIFIED EDUCATION EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
education expenses’ means—
‘‘(i) qualified higher education ex-
penses (as defined in section 529(e)(3)),
and
‘‘(ii) qualified elementary and sec-
ondary education expenses (as defined in
paragraph (4)).
‘‘(B) QUALIFIED
STATE
TUITION
PRO-
GRAMS.—Such term shall include any contribu-
tion to a qualified State tuition program (as de-
fined in section 529(b)) on behalf of the des-
ignated beneficiary (as defined in section
529(e)(1)); but there shall be no increase in the
investment in the contract for purposes of ap-
plying section 72 by reason of any portion of
such contribution which is not includible in
gross income by reason of subsection (d)(2).’’.
(2) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—Section 530(b) (relating to
definitions and special rules) is amended by adding
at the end the following new paragraph:
‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified el-
ementary and secondary education expenses’
means—
‘‘(i) expenses for tuition, fees, aca-
demic tutoring, special needs services,
books, supplies, computer equipment (in-
cluding related software and services), and
other equipment which are incurred in con-
nection with the enrollment or attendance
of the designated beneficiary of the trust
as an elementary or secondary school stu-
dent at a public, private, or religious
school, and
‘‘(ii) expenses for room and board,
uniforms, 
transportation, 
and 
supple-
mentary items and services (including ex-
tended day programs) which are required
or provided by a public, private, or reli-
gious school in connection with such enroll-
ment or attendance.
‘‘(B) 
SPECIAL
RULE
FOR
HOMESCHOOLING.—Such term shall include ex-
penses described in subparagraph (A)(i) in con-
nection 
with 
education 
provided 
by
homeschooling if the requirements of any appli-
cable State or local law are met with respect to
such education.
‘‘(C) SCHOOL.—The term ‘school’ means
any school which provides elementary education
or secondary education (kindergarten through
grade 12), as determined under State law.’’.
(3) CONFORMING AMENDMENTS.—Section 530
is amended—
(A) by striking ‘‘higher’’ each place it ap-
pears in subsections (b)(1) and (d)(2), and
(B) by striking ‘‘HIGHER’’ in the heading
for subsection (d)(2).
(c) WAIVER OF AGE LIMITATIONS FOR CHILDREN
WITH SPECIAL NEEDS.—Section 530(b)(1) (defining edu-
cation individual retirement account) is amended by add-
ing at the end the following flush sentence:
‘‘The age limitations in subparagraphs (A)(ii) and
(E) and paragraphs (5) and (6) of subsection (d)
shall not apply to any designated beneficiary with
special needs (as determined under regulations pre-
scribed by the Secretary).’’.
(d) ENTITIES PERMITTED TO CONTRIBUTE TO AC-
COUNTS.—Section 530(c)(1) (relating to reduction in per-
mitted contributions based on adjusted gross income) is
amended by striking ‘‘The maximum amount which a con-
tributor’’ and inserting ‘‘In the case of a contributor who
is an individual, the maximum amount the contributor’’.
(e) TIME WHEN CONTRIBUTIONS DEEMED MADE.—
(1) IN GENERAL.—Section 530(b) (relating to
definitions and special rules), as amended by sub-
section (b)(2), is amended by adding at the end the
following new paragraph:
‘‘(5) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—An individual shall be deemed to have made
a contribution to an education individual retirement
account on the last day of the preceding taxable year
if the contribution is made on account of such tax-
able year and is made not later than the time pre-
scribed by law for filing the return for such taxable
year (not including extensions thereof).’’.
(2) EXTENSION OF TIME TO RETURN EXCESS
CONTRIBUTIONS.—Subparagraph 
(C) 
of 
section
530(d)(4) (relating to additional tax for distribu-
tions 
not 
used 
for 
educational 
expenses) 
is
amended—
(A) by striking clause (i) and inserting the
following new clause:
‘‘(i) such distribution is made before
the first day of the sixth month of the tax-
able year following the taxable year, and’’,
and
(B) by striking ‘‘DUE DATE OF RETURN’’
in the heading and inserting ‘‘CERTAIN DATE’’.
(f ) COORDINATION WITH HOPE
AND LIFETIME
LEARNING
CREDITS
AND
QUALIFIED
TUITION
PRO-
GRAMS.—
(1) IN
GENERAL.—Section 530(d)(2)(C) is
amended to read as follows:
‘‘(C) COORDINATION
WITH
HOPE
AND
LIFETIME LEARNING CREDITS AND QUALIFIED
TUITION PROGRAMS.—For purposes of subpara-
graph (A)—
‘‘(i) 
CREDIT
COORDINATION.—The
total amount of qualified higher education
expenses with respect to an individual for
the taxable year shall be reduced—
‘‘(I) 
as 
provided 
in 
section
25A(g)(2), and
‘‘(II) by the amount of such ex-
penses which were taken into account
in determining the credit allowed to
the taxpayer or any other person
under section 25A.
‘‘(ii) COORDINATION WITH QUALIFIED
TUITION
PROGRAMS.—If, with respect to
an individual for any taxable year—
‘‘(I) the aggregate distributions
during such year to which subpara-
graph (A) and section 529(c)(3)(B)
apply, exceed
‘‘(II) the total amount of quali-
fied education expenses (after the ap-
plication of clause (i)) for such year,
the taxpayer shall allocate such expenses
among such distributions for purposes of
determining the amount of the exclusion
under 
subparagraph 
(A) 
and 
section
529(c)(3)(B).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (e) of section 25A is
amended to read as follows:
‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A
taxpayer may elect not to have this section apply with re-
spect to the qualified tuition and related expenses of an
individual for any taxable year.’’.
(B) Section 135(d)(2)(A) is amended by
striking ‘‘allowable’’ and inserting ‘‘allowed’’.
(C) Section 530(d)(2)(D) is amended—
(i) by striking ‘‘or credit’’, and
(ii) by striking ‘‘CREDIT OR’’ in the
heading.
(D) Section 4973(e)(1) is amended by add-
ing ‘‘and’’ at the end of subparagraph (A), by
striking subparagraph (B), and by redesig-
nating subparagraph (C) as subparagraph (B).
(g) RENAMING EDUCATION INDIVIDUAL RETIRE-
MENT ACCOUNTS AS PAUL COVERDELL EDUCATION SAV-
INGS ACCOUNTS.—
(1) IN GENERAL.—
(A) Section 530 (as amended by the pre-
ceding provisions of this section) is amended by
striking ‘‘education individual retirement ac-
count’’ each place it appears and inserting
‘‘Paul Coverdell education savings account’’.
(B) The heading for paragraph (1) of sec-
tion 530(b) is amended by striking ‘‘EDU-
CATION
INDIVIDUAL
RETIREMENT
ACCOUNT’’
and inserting ‘‘PAUL COVERDELL EDUCATION
SAVINGS ACCOUNT’’.
(C) The heading for section 530 is amend-
ed to read as follows:
‘‘SEC. 530. PAUL COVERDELL EDUCATION SAVINGS AC-
COUNTS.’’.
(D) The item in the table of contents for
part VII of subchapter F of chapter 1 relating
to section 530 is amended to read as follows:
‘‘Sec. 530. Paul Coverdell Education savings accounts.’’.
(2) CONFORMING AMENDMENTS.—
(A) The following provisions are each
amended by striking ‘‘education individual re-
tirement’’ each place it appears and inserting
‘‘Paul Coverdell education savings’’:
(i) Section 25A(e)(2).
(ii) Section 26(b)(2)(E).
(iii) Section 72(e)(9).
(iv) Section 135(c)(2)(C).
(v) Subsections (a) and (e) of section
4973.
(vi) Subsections (c) and (e) of section
4975.
(vii) Section 6693(a)(2)(D).
(B) The headings for each of the following
provisions are amended by striking ‘‘EDU-
CATION
INDIVIDUAL
RETIREMENT
ACCOUNTS’’
each place it appears and inserting ‘‘PAUL
COVERDELL EDUCATION SAVINGS ACCOUNTS’’.
(i) Section 72(e)(9).
(ii) Section 135(c)(2)(C).
(iii) Section 4973(e).
(iv) Section 4975(c)(5).
(h) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years beginning after the date
of the enactment of this Act.
(2) SUBSECTION (g).—The amendments made
by subsection (g) shall take effect on the date of the
enactment of this Act.
SEC. 3. MODIFICATIONS TO QUALIFIED TUITION PRO-
GRAMS.
(a) SHORT TITLE.—This section may be cited as the
‘‘Collegiate Learning and Student Savings (CLASS) Act’’.
(b) ELIGIBLE EDUCATIONAL INSTITUTIONS PER-
MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 529(b)(1) (defining
qualified State tuition program) is amended by in-
serting ‘‘or by one or more eligible educational insti-
tutions’’ after ‘‘maintained by a State or agency or
instrumentality thereof ’’.
(2) PRIVATE
QUALIFIED
TUITION
PROGRAMS
LIMITED TO BENEFIT PLANS.—Clause (ii) of section
529(b)(1)(A) is amended by inserting ‘‘in the case of
a program established and maintained by a State or
agency or instrumentality thereof,’’ before ‘‘may
make’’.
(3) CONFORMING AMENDMENTS.—
(A) 
Sections 
72(e)(9), 
135(c)(2)(C),
135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and
6693(a)(2)(C) are each amended by striking
‘‘qualified State tuition’’ each place it appears
and inserting ‘‘qualified tuition’’.
(B) The headings for sections 72(e)(9),
135(c)(2)(C), 
and 
530(b)(2)(B) 
are 
each
amended by striking ‘‘QUALIFIED STATE TUI-
TION’’ and inserting ‘‘QUALIFIED TUITION’’.
(C) The heading for sections 529(b) is
amended by striking ‘‘QUALIFIED STATE TUI-
TION’’ and inserting ‘‘QUALIFIED TUITION’’.
(D) The heading for section 529 is amend-
ed by striking ‘‘STATE’’.
(E) The item relating to section 529 in the
table of sections for part VIII of subchapter F
of chapter 1 is amended by striking ‘‘State’’.
(c) EXCLUSION FROM GROSS INCOME
OF EDU-
CATION DISTRIBUTIONS FROM QUALIFIED TUITION PRO-
GRAMS.—
(1) IN GENERAL.—Section 529(c)(3)(B) (relat-
ing to distributions) is amended to read as follows:
‘‘(B) 
DISTRIBUTIONS
FOR
QUALIFIED
HIGHER EDUCATION EXPENSES.—For purposes
of this paragraph—
‘‘(i) 
IN-KIND
DISTRIBUTIONS.—No
amount shall be includible in gross income
under subparagraph (A) by reason of a
distribution which consists of providing a
benefit to the distributee which, if paid for
by the distributee, would constitute pay-
ment of a qualified higher education ex-
pense.
‘‘(ii) CASH
DISTRIBUTIONS.—In the
case of distributions not described in
clause (i), if—
‘‘(I) such distributions do not ex-
ceed the qualified higher education ex-
penses (reduced by expenses described
in clause (i)), no amount shall be in-
cludible in gross income, and
‘‘(II) in any other case, the
amount otherwise includible in gross
income shall be reduced by an amount
which bears the same ratio to such
amount as such expenses bear to such
distributions.
‘‘(iii) 
TREATMENT
AS
DISTRIBU-
TIONS.—Any benefit furnished to a des-
ignated beneficiary under a qualified tui-
tion program shall be treated as a distribu-
tion to the beneficiary for purposes of this
paragraph.
‘‘(iv) COORDINATION WITH HOPE AND
LIFETIME LEARNING CREDITS.—The total
amount of qualified higher education ex-
penses with respect to an individual for the
taxable year shall be reduced—
‘‘(I) 
as 
provided 
in 
section
25A(g)(2), and
‘‘(II) by the amount of such ex-
penses which were taken into account
in determining the credit allowed to
the taxpayer or any other person
under section 25A.
‘‘(v) COORDINATION WITH EDUCATION
INDIVIDUAL RETIREMENT ACCOUNTS.—If,
with respect to an individual for any tax-
able year—
‘‘(I) the aggregate distributions
to which clauses (i) and (ii) and sec-
tion 530(d)(2)(A) apply, exceed
‘‘(II) the total amount of quali-
fied higher education expenses other-
wise taken into account under clauses