text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Higher Education Savings Plan Act of 
  1993''.
  
  SEC. 2. PENALTY FREE WITHDRAWALS FROM ANNUITIES FOR HIGHER EDUCATION 
                EXPENSES.
  
      (a) In General.--Paragraph (2) of section 72(q) of the Internal 
  Revenue Code of 1986 (relating to 10-percent penalty for premature 
  distributions from annuity contracts) is amended by striking ``or'' at 
  the end of subparagraph (I), by striking the period at the end of 
  subparagraph (J) and inserting ``, or'', and by inserting after 
  subparagraph (J) the following new subparagraph:
              ``(K) which is a qualified higher education expense 
          distribution (as defined in paragraph (4)).''
      (b) Qualified Higher Education Expense Distribution.--Subsection 
  (q) of section 72 of such Code is amended by adding at the end thereof 
  the following new paragraph:
              ``(4) Qualified higher education expense distribution.--
                      ``(A) In general.--For purposes of paragraph 
                  (2)(K), the term `qualified higher education expense 
                  distribution' means any distribution from a designated 
                  higher education expense annuity to the taxpayer if 
                  such distribution is used within 90 days of the date of 
                  the distribution to pay qualified tuition and related 
                  expenses (as defined in section 117(b)) required for 
                  the enrollment or attendance of such taxpayer, the 
                  taxpayer's spouse, or a child (as defined in section 
                  151(c)(3)) or grandchild of such taxpayer at an 
                  eligible educational institution (as defined in section 
                  135(c)(3)); except that such expenses shall be reduced 
                  by any amount excluded from gross income under section 
                  135 by reason of such expenses.
                      ``(B) Designated higher education expense 
                  annuity.--
                              ``(i) In general.--The term `designated 
                          higher education expense annuity' means any 
                          annuity purchased after December 31, 1992, and 
                          designated for purposes of this paragraph by 
                          the purchaser at the time of purchase as an 
                          annuity to which this paragraph applies.
                              ``(ii) Certain annuities received in an 
                          exchange not eligible.--Such term shall not 
                          include any annuity acquired in an exchange to 
                          which section 1035 applies unless the annuity 
                          given up by the taxpayer in the exchange was a 
                          designated higher education expense annuity.''
      (c) Gift Tax Treatment.--Subsection (e) of section 2503 of such 
  Code is amended by adding at the end thereof the following new 
  paragraph:
              ``(3) Treatment of premiums paid under designated higher 
          education expense annuities.--
                      ``(A) In general.--Any premium paid for a 
                  designated higher education expense annuity shall not 
                  be treated as transfer of property by gift for purposes 
                  of this chapter.
                      ``(B) Recapture rules.--If any premium paid by any 
                  person for a designated higher education expense 
                  annuity is not treated as a taxable gift solely by 
                  reason of subparagraph (A)--
                              ``(i) Lifetime distributions not used for 
                          educational purposes.--Any disqualified 
                          lifetime distribution from the portion of any 
                          annuity attributable to such premium shall be 
                          treated as a transfer by gift by such person.
                              ``(ii) Inclusion in gross estate.--The 
                          gross estate of such person shall include the 
                          value (as of the date of the decedent's death 
                          or applicable valuation date set forth in 
                          section 2032) of the portion of any annuity 
                          attributable to such premium.
                      ``(C) Disqualified lifetime distribution.--For 
                  purposes of subparagraph (B), the term `disqualified 
                  lifetime distribution' means any distribution which is 
                  not a qualified higher education distribution and which 
                  is made during the life of the person referred to in 
                  subparagraph (B) to or for the benefit of another 
                  person.
                      ``(D) Other definitions.--For purposes of this 
                  paragraph, the terms `designated higher education 
                  expense annuity' and `qualified higher education 
                  expense distribution' have the respective meanings 
                  given such terms by section 72(q)(4).''
      (d) Effective Date.--The amendments made by this section shall take 
  effect on January 1, 1994.
target: Higher Education Savings Plan Act of 1993 - Amends the Internal Revenue Code to exempt distributions from a higher education expenses annuity contract from the ten-percent penalty on premature distributions from annuity contracts. 
  Excludes the premium to purchase such a contract from gift tax liability.
feat_title: Higher Education Savings Plan Act of 1993