article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Setting Aside for a Valuable Education (SAVE) Act''. SEC. 2. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED STATE TUITION PROGRAMS. (a) 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.--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) Exception for institutional programs.--In the case of any taxable year beginning before January 1, 2004, clauses (i) and (ii) shall not apply with respect to any distribution during such taxable year under a qualified State tuition program established and maintained by 1 or more eligible educational institutions. ``(iv) 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. ``(v) 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. ``(vi) Coordination with education savings 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 the Internal Revenue Code of 1986 is amended by striking ``section 530(d)(2)'' and inserting ``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, 2000. SEC. 3. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS. (a) In General.--Section 529(b)(1) of the Internal Revenue Code of 1986 (defining qualified State tuition program) is amended by inserting ``or by 1 or more eligible educational institutions'' after ``maintained by a State or agency or instrumentality thereof''. (b) Private Qualified Tuition Programs Limited to Benefit Plans.-- Clause (ii) of section 529(b)(1)(A) of the Internal Revenue Code of 1986 is amended by inserting ``in the case of a program established and maintained by a State or agency or instrumentality thereof,'' before ``may make''. (c) Additional Requirements for Certain Private Qualified Tuition Programs.--Section 529(b) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: ``(8) Additional requirements for certain private qualified tuition programs.--A program established and maintained by 1 or more eligible educational institutions and described in paragraph (1)(A)(ii) shall not be treated as a qualified tuition program unless-- ``(A) under such program a trust is created or organized for the sole purpose of paying the qualified higher education expenses of the designated beneficiary of the account, ``(B) the written governing instrument creating the trust of which the account is a part provides safeguards to ensure that contributions made on behalf of a designated beneficiary remain available to provide for the qualified higher education expenses of the designated beneficiary, and ``(C) the trust meets the following requirements: ``(i) Any trustee or person who may under contract operate or manage the trust demonstrates to the satisfaction of the Secretary that the manner in which that trustee or person will administer the trust will be consistent with the requirements of this section. ``(ii) The assets of the trust are not commingled with other property except in a common trust fund or common investment fund. ``(iii) The trust annually prepares and makes available the reports and accountings required by this section. The annual report, at a minimum, includes information on the financial condition of the trust and the investment policy of the trust. ``(iv) Before entering into contracts or otherwise accepting contributions on behalf of a designated beneficiary, the trust obtains an appropriate actuarial report to establish, maintain, and certify that the trust shall have sufficient assets to defray the obligations of the trust and annually makes the actuarial report available to account contributors and designated beneficiaries. ``(v) The trust secures a favorable ruling or opinion issued by the Internal Revenue Service that the trust is in compliance with the requirements of this section. ``(vi) Before entering into contracts or otherwise accepting contributions on behalf of a designated beneficiary, the trust solicits answers to appropriate ruling requests from the Securities and Exchange Commission regarding the application of Federal securities laws to the trust.''. (d) Application of Federal Securities Laws to Private Qualified Tuition Programs.--Section 529(e) of the Internal Revenue Code of 1986 (relating to other definitions and special rules) is amended by adding at the end the following new paragraph: ``(6) Application of federal securities laws to private qualified tuition programs.--Nothing in this section shall be construed to exempt any qualified tuition program that is not established and maintained by a State or agency or instrumentality thereof from any of the requirements of the Securities Act of 1933 (15 U.S.C 77a et seq.) or the Investment Company Act of 1940 (15 U.S.C 80a-1 et seq.).''. (e) Conforming Amendments.-- (1) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) of the Internal Revenue Code of 1986 are each amended by striking ``qualified State tuition'' each place it appears and inserting ``qualified tuition''. (2) The headings for sections 72(e)(9) and 135(c)(2)(C) of such Code are each amended by striking ``qualified state tuition'' and inserting ``qualified tuition''. (3) The headings for sections 529(b) and 530(b)(2)(B) of such Code are each amended by striking ``Qualified state tuition'' and inserting ``Qualified tuition''. (4) The heading for section 529 of such Code is amended by striking ``state''. (5) 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''. (f) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 4. OTHER MODIFICATIONS TO QUALIFIED TUITION PROGRAMS. (a) Rollover to Different Program for Benefit of Same Designated Beneficiary.--Section 529(c)(3)(C) of the Internal Revenue Code of 1986 (relating to change in beneficiaries) is amended-- (1) by striking ``transferred to the credit'' in clause (i) and inserting ``transferred-- ``(I) to another qualified tuition program for the benefit of the designated beneficiary, or ``(II) to the credit'', (2) by adding at the end the following new clause: ``(iii) Limitation on certain rollovers.-- Clause (i)(I) shall only apply to 1 transfer with respect to a designated beneficiary in any year.'', and (3) by inserting ``or programs'' after ``beneficiaries'' in the heading. (b) Member of Family Includes First Cousin.--Section 529(e)(2) of the Internal Revenue Code of 1986 (defining member of family) is amended by striking ``and'' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and by inserting ``; and'', and by adding at the end the following new subparagraph: ``(D) any first cousin of such beneficiary.''. (c) Adjustment of Limitation on Room and Board Distributions.-- Section 529(e)(3)(B)(ii) of the Internal Revenue Code of 1986 is amended to read as follows: ``(ii) Limitation.--The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed the greater of-- ``(I) the amount (applicable to the student) included for room and board for such period in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Setting Aside for a Valuable Education (SAVE) Act) for the eligible educational institution for such period, or ``(II) the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000.
summary: Setting Aside for a Valuable Education (SAVE) Act - Amends the Internal Revenue Code to: (1) permit private higher educational institutions, in addition to currently permitted State institutions, to establish qualified tuition programs; (2) exclude from gross income program distributions used for qualified higher education expenses; (3) permit an annual rollover to a different tuition program on behalf of the same beneficiary; (4) include first cousins as a qualifying family member; and (5) revise the room and board limitation.