I
104TH CONGRESS
1ST SESSION
H. R. 769
To amend the Internal Revenue Code of 1986 to provide for the establishment
of, and the deduction of contributions to, education savings accounts.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 1, 1995
Mr. GILLMOR (for himself, Mr. SOLOMON, Mr. CANADY of Florida, Mr.
ROHRABACHER, Mr. QUINN, Mr. BEREUTER, Mr. BILIRAKIS, Mr. LIV-
INGSTON, Mr. BACHUS, Ms. PRYCE, Mr. MCHUGH, Ms. DANNER, Mr.
MANZULLO, Mr. SCHAEFER, Mr. EMERSON, Mr. LIPINSKI, Mr.
HASTERT, Mr. CALVERT, Mr. DOOLITTLE, Mr. BLUTE, Mr. KING, Mr.
KNOLLENBERG, Mr. SENSENBRENNER, Mr. WALSH, Mr. DEUTSCH, Mr.
PACKARD, Mr. ZIMMER, Mrs. VUCANOVICH, and Mr. HANCOCK) intro-
duced the following bill; which was referred to the Committee on Ways
and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
for the establishment of, and the deduction of contribu-
tions to, education savings accounts.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EDUCATION SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 220 as section 221 and by insert-
ing after section 219 the following new section:
‘‘SEC. 220. EDUCATION SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual, there shall be allowed as a deduction the sum of—
‘‘(1) amounts paid in cash, and
‘‘(2) the fair market value of stocks, bonds, or
other securities, which are readily tradable on an es-
tablished securities market, transferred,
during the calendar year which ends with or within the
taxable year by such individual to an education savings
account established for the purpose of accumulating funds
to pay the educational expenses of an eligible individual.
‘‘(b) LIMITATIONS.—
‘‘(1) ACCOUNT MAY NOT BE ESTABLISHED FOR
BENEFIT OF MORE THAN 1 INDIVIDUAL.—An edu-
cation savings account may not be established for
the benefit of more than 1 individual.
‘‘(2) ELIGIBLE INDIVIDUAL TREATED AS ELIGI-
BLE
INDIVIDUAL
ONLY
WITH
RESPECT
TO
AC-
COUNT.—If, at any time during a calendar year, 2
or more education savings accounts are maintained
for the benefit of an eligible individual, such individ-
ual shall be treated as an eligible individual for the
calendar year only with respect to the first of such
accounts.
‘‘(3) MAXIMUM
DEDUCTION
PER
ACCOUNT.—
The amount allowable as a deduction under sub-
section (a) to an individual for amounts paid or
transferred to an education savings account for any
calendar year shall not exceed $1,500.
‘‘(4) NO DEDUCTION AFTER BENEFICIARY AT-
TAINS AGE 19.—No deduction shall be allowed for
any contribution to an education savings account es-
tablished for the benefit of an eligible individual who
has attained age 19 before the close of the calendar
year in which such contribution is made.
‘‘(5) ADJUSTMENT OF DOLLAR AMOUNT LIMI-
TATIONS FOR INFLATION.—In the case of any cal-
endar year after 1995, the $1,500 contained in
paragraph (3) and subsection (c)(2)(A) shall be in-
creased by an amount equal to—
‘‘(A) $1,500, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1994’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
Any increase determined under the preceding sen-
tence shall be rounded to the nearest multiple of
$10.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means an individual who is—
‘‘(A) a child (within the meaning of section
153(e)(3)) of the taxpayer or of a brother, sis-
ter, stepbrother, or stepsister of the taxpayer,
‘‘(B) an individual with respect to whom
the taxpayer has been appointed guardian by a
court of competent jurisdiction, or
‘‘(C) a descendant of a child of the tax-
payer.
‘‘(2) 
EDUCATION
SAVINGS
ACCOUNT.—The
term ‘education savings account’ means a trust cre-
ated or organized in the United States exclusively
for the purpose of paying the educational expenses
of an eligible individual, but only if the written gov-
erning instrument creating the trust meets the fol-
lowing requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash, stocks, bonds, or other securi-
ties which are readily tradable on an established
securities market, and, except in the case of
contributions from another education savings
account or an individual retirement plan, con-
tributions will not be accepted for the taxable
year in excess of $1,500.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which that person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts (other than
contracts the beneficiary of which is the trust
and the face amount of which does not exceed
the amount by which the maximum amount
which can be contributed to the account exceeds
the sum of the amounts contributed to the ac-
count for all taxable years).
‘‘(D) The assets of the account may be in-
vested in accordance with the direction of the
individual contributing to the account, but, if
more than one individual has made contribu-
tions to the account, the consent of all such in-
dividuals shall be required for any such direc-
tion.
‘‘(E) The assets of the trust shall not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(F) Any balance in the account on the
day after the date on which the individual for
whose benefit the trust is established attains
age 30 (or, if earlier, the date on which such
individual dies) shall be distributed within 30
days of such date—
‘‘(i) in accordance with paragraph (5)
to each of the individuals who have con-
tributed to the trust, or
‘‘(ii) as directed by such individuals,
to another education savings account es-
tablished for the benefit of an eligible indi-
vidual who has not attained age 30 or to
an eligible educational institution.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution on the last day of the preceding taxable
year if the contribution is made on account of such
taxable year and is made not later than the time
prescribed by law for filing the return for such tax-
able year (including extensions thereof).
‘‘(4) STOCK, ETC., TO
BE
VALUED
AS
OF
TRANSFER DATE.—The fair market value of stocks,
bonds, and other securities shall be determined as of
the date on which they are transferred to the ac-
count. If the date of transfer falls on a Saturday,
Sunday, or public legal holiday, then the fair market
value shall be determined by reference to the last
preceding day on which they could have been traded
on an established securities market.
‘‘(5) DISTRIBUTION OF BALANCE IN ACCOUNT
TO CONTRIBUTORS.—The Secretary shall prescribe
regulations describing the manner in which any bal-
ance in the educational savings account shall be dis-
tributed under paragraph (2)(F)(i) among the con-
tributors to the account. Any division of the balance
in the account shall reflect—
‘‘(A) the amount of net income of the ac-
count which is attributable to the contributions
of each such individual, and
‘‘(B) a proper allocation of any amounts
previously distributed from the account for edu-
cational expenses among the contributions
which were made before any such distribution
(including the net income of the account which
was attributable to such contributions and
earned before any such distribution).
‘‘(6) 
EDUCATIONAL
EXPENSES.—The 
term
‘educational expenses’ means—
‘‘(A) tuition and fees required for the en-
rollment or attendance of a student at an eligi-
ble educational institution,
‘‘(B) fees, books, supplies, and equipment
required for courses of instruction at an eligible
educational institution, and
‘‘(C) a reasonable allowance for meals and
lodging while attending an eligible educational
institution.
‘‘(7) ELIGIBLE EDUCATIONAL INSTITUTION.—
The term ‘eligible educational institution’ means—
‘‘(A) an institution of higher education, or
‘‘(B) a vocational school.
‘‘(8) INSTITUTION OF HIGHER EDUCATION.—
The term ‘institution of higher education’ means the
institutions described in section 1201(a) or 481(a)
of the Higher Education Act of 1965.
‘‘(9) VOCATIONAL
SCHOOL.—The term ‘voca-
tional school’ means an area vocational education
school as defined in subparagraph (C) or (D) of sec-
tion 521(4) of the Carl D. Perkins Vocational and
Applied Technology Education Act to the extent
such school is located within any State (as defined
in section 521(33) of such Act).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of an education savings account shall be in-
cluded in gross income of the payee or distributee
for the taxable year in which the payment or dis-
tribution is received to the extent such amount is
not the return of a contribution for which no deduc-
tion was allowed under subsection (a).
‘‘(2) DISTRIBUTION
USED
TO
PAY
EDU-
CATIONAL
EXPENSES.—Paragraph (1) shall not
apply to any payment or distribution out of an edu-
cation savings account to the extent such payment
or distribution is used exclusively to pay the edu-
cational expenses incurred by the individual for
whose benefit the account is established.
‘‘(3) DISTRIBUTIONS TO ANOTHER ACCOUNT OR
TO
ELIGIBLE
EDUCATIONAL
INSTITUTION.—Para-
graph (1) shall not apply to any distribution under
subsection (c)(2)(F)(ii).