article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Securing Affordable Vocational and Collegiate Education (SAVE) Act.'' SEC. 2. DEDUCTION FOR PAYMENTS TO QUALIFIED STATE TUITION PROGRAMS. (a) In General.--Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 222 as section 223 and by inserting after section 221 the following new section: ``SEC. 222. PAYMENTS TO QUALIFIED STATE TUITION PROGRAMS. ``(a) Allowance of Deduction.--In the case of an individual, there shall be allowed as a deduction an amount equal to the amount paid by the taxpayer during the taxable year to any qualified State tuition program (as defined in section 529) for the benefit of any designated beneficiary (as defined in such section). ``(b) Dollar Limitation.--The deduction allowed by subsection (a) for the taxable year shall not exceed $5,000 ($10,000 in the case of a joint return).'' (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 62(a) of such Code is amended by inserting after paragraph (17) the following new paragraph: ``(18) Payments to qualified state tuition programs.--The deduction allowed by section 222.'' (c) Conforming Amendment.--The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 222 and inserting: ``Sec. 222. Payments to qualified State tuition programs. ``Sec. 223. Cross reference.'' (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2001. SEC. 3. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED STATE TUITION PROGRAMS. (a) In General.--Section 529(c)(3)(B) of the Internal Revenue Code of 1986 (relating 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 payment of a qualified higher education expense. ``(ii) Cash distributions.--In the case of distributions not described in clause (i), if-- ``(I) such distributions do not exceed the qualified higher education expenses (reduced by expenses described in clause (i)), no amount shall be includible 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 distributions.--Any benefit furnished to a designated beneficiary under a qualified State tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph. ``(iv) Coordination with hope and lifetime learning credits.--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 expenses 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 taxable year-- ``(I) the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed ``(II) the total amount of qualified higher education expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (iv)) for such year, the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).''. (b) Conforming Amendments.-- (1) Section 135(d)(2)(B) of such Code is amended by striking ``the exclusion under section 530(d)(2)'' and inserting ``the exclusions under sections 529(c)(3)(B)(i) and 530(d)(2)''. (2) Section 221(e)(2)(A) of such Code is amended by inserting ``529,'' after ``135,''. (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
summary: Securing Affordable Vocational and Collegiate Education (SAVE) Act - Amends the Internal Revenue Code to: (1) allow a limited deduction for amounts paid to any qualified State tuition program; and (2) provide that distributions from such programs used to pay qualified higher education expenses shall not be included in gross income.