text: 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.
target: 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.
feat_title: A bill to amend the Internal Revenue Code of 1986 to provide an exclusion from gross income for distributions from qualified State tuition programs which are used to pay education expenses, and for other purposes.