article: SECTION 1. SHORT TITLE; COORDINATION WITH TAXPAYER RELIEF ACT OF 1997. (a) Short Title.--This Act may be cited as the ``Higher Education Affordability and Availability Act''. (b) Coordination With Taxpayer Relief Act of 1997.--Any reference in this Act to any section of the Internal Revenue Code of 1986 amended or added by the Taxpayer Relief Act of 1997 shall be a reference to such section as so amended or added. SEC. 2. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS; COVERAGE OF PRIVATE PROGRAMS. (a) Exclusion.-- (1) In general.--Subparagraph (B) of section 529(c)(3) of the Internal Revenue Code of 1986 (relating to distributions) is amended to read as follows: ``(B) Distributions for qualified higher education expenses.--If a distributee elects the application of this subparagraph for any taxable year-- ``(i) no amount shall be includible in gross income by reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense, and ``(ii) the amount which (but for the election) would be includible in gross income by reason of any other distribution shall not be so includible in an amount which bears the same ratio to the amount which would be so includible as the amount of the qualified higher education expenses of the distributee bears to the amount of the distribution.'' (2) Additional tax on amounts not used for higher education expenses.--Section 529 of such Code is amended by adding at the end the following new subsection: ``(f) Additional Tax for Distributions Not Used for Educational Expenses.-- ``(1) In general.--The tax imposed by section 530(d)(4) shall apply to payments and distributions from qualified tuition programs in the same manner as such tax applies to education individual retirement accounts. ``(2) Excess contributions returned before due date of return.--Paragraph (1) shall not apply to the distribution to a contributor of any contribution paid during a taxable year to a qualified tuition program to the extent that such contribution exceeds the limitation in section 4973(e) if such distribution (and the net income with respect to such excess contribution) meets requirements comparable to the requirements of clauses (i) and (ii) of section 530(d)(4)(C).'' (3) Coordination with education credits.--Section 25A(e)(2) of such Code is amended by inserting ``529(c)(3)(B) or'' before ``530(d)(2)''. (4) Effective date.--The amendments made by this subsection shall apply to distributions after December 31, 1997, for education furnished in academic periods beginning after such date. (b) Eligible Educational Institutions Permitted To Maintain Qualified Tuition Programs.-- (1) In general.--Paragraph (1) of section 529(b) of such Code (defining qualified State tuition program) is amended by inserting ``or by one or more eligible educational institutions'' after ``maintained by a State or agency or instrumentality thereof''. (2) Limitation on contributions to qualified tuition programs not maintained by a state.--Subsection (b) of section 529 of such Code is amended by adding at the end the following new paragraph: ``(8) Limitation on contributions to qualified tuition programs not maintained by a state.--In the case of a program not maintained by a State or agency or instrumentality thereof, such program shall not be treated as a qualified tuition program unless it limits the annual contribution to the program on behalf of a designated beneficiary to $5,000.'' (3) Tax on excess contributions.-- (A) In general.--Subsection (a) of section 4973 of such Code is amended by striking ``or'' at the end of paragraph (3), by redesignating paragraph (4) as paragraph (5), and by inserting after paragraph (3) the following new paragraph: ``(4) a qualified tuition program (as defined in section 529) not maintained by a State or any agency or instrumentality thereof, or''. (B) Excess contributions defined.--Section 4973(e) of such Code is amended to read as follows: ``(e) Excess Contributions to Private Qualified Tuition Program and Education Individual Retirement Accounts.--For purposes of this section-- ``(1) In general.--In the case of private education investment accounts maintained for the benefit of any 1 beneficiary, the term `excess contributions' means the amount by which the amount contributed for the taxable year to such accounts exceeds $5,000. ``(2) Private education investment account.--For purposes of paragraph (1), the term `private education investment account' means-- ``(A) a qualified tuition program (as defined in section 529) not maintained by a State or any agency or instrumentality thereof, and ``(B) an education individual retirement account (as defined in section 530). ``(3) Special rules.--For purposes of paragraph (1), the following contributions shall not be taken into account: ``(A) Any contribution which is distributed out of the education individual retirement account in a distribution to which section 530(d)(4)(C) applies. ``(B) Any contribution to a qualified tuition program (as so defined) described in section 530(b)(2)(B) from any such account. ``(C) Any rollover contribution.'' (4) Conforming amendments.-- (A) Paragraph (2) of section 26(b) of such Code is amended by redesignating subparagraphs (E) through (Q) as subparagraphs (F) through (R), respectively, and by inserting after subparagraph (D) the following new subparagraph: ``(E) section 529(f) (relating to additional tax on certain distributions from qualified tuition programs),''. (B) The text and headings of sections 529 and 530 of such Code are amended by striking ``qualified State tuition program'' each place it appears and inserting ``qualified tuition program''. (C)(i) The section heading of section 529 of such Code is amended to read as follows: ``SEC. 529. QUALIFIED TUITION PROGRAMS.'' (ii) The item relating to section 529 of such Code in the table of sections for part VIII of subchapter F of chapter 1 is amended by striking ``State''. (5) Effective date.--The amendments made by this subsection shall take effect on January 1, 1998. (c) Change of Qualified Tuition Program or of Designated Beneficiary.-- (1) In general.--Clause (i) of section 529(c)(3)(C) of such Code is amended by inserting ``to another qualified tuition program for the benefit of the designated beneficiary or'' after ``transferred''. (2) Inclusion of siblings as member of family.--Paragraph (e)(2) of section 529(e) of such Code is amended by inserting before the period at the end the following: ``, except that such term shall include any sibling (whether by the whole or half blood) of the designated beneficiary''. (3) Effective date.--The amendments made by this subsection shall take effect on January 1, 1998.
summary: Higher Education Affordability and Availability Act - Amends the Internal Revenue Code (as revised by the Taxpayer Relief Act of 1997) to exclude from income distributions from qualified tuition programs used for qualifying higher education expenses. Includes within the definition of "qualified State tuition program" programs maintained by eligible educational institutions. Requires such non-State programs to limit annual contributions on behalf of a designated beneficiary to $5,000. Sets forth related excess contribution provisions.