MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS. (a) Maximum Annual Contributions.— (1) In general.—Election 530(b)(1)(A)(iii) (defining education individual retirement account) is amended by striking “$500” and inserting “$2,000”. (2) Conforming amendment.—Section 4973(e)(1)(A) is amended by striking “$500” and inserting “$2,000”. (b) Modification of AGI Limits to Remove Marriage Penalty.—Section 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended— (1) by striking “$150,000” in subparagraph (A)(ii) and inserting “$190,000”, and (2) by striking “$10,000” in subparagraph (B) and inserting “$30,000”. (c) Tax-Free Expenditures for Elementary and Secondary School Expenses.— (1) In general.—Section 530(b)(2) (defining qualified higher education expenses) is amended to read as follows: “(2) Qualified education expenses.— “(A) In general.—The term ‘qualified education expenses’ means— “(i) qualified higher education expenses (as defined in section 529(e)(3)), and “(ii) qualified elementary and secondary education expenses (as defined in paragraph (4)). “(B) Qualified state tuition programs.—Such term shall include any contribution to a qualified State tuition program (as defined in section 529(b)) on behalf of the designated beneficiary (as defined in section 529(e)(1); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2).".115 STAT. 58 (2) Qualified elementary and secondary education expenses.—Section 530(b) (relating to definitions and special rules) is amended by adding at the end the following new paragraph: “(4) Qualified elementary and secondary education expenses.— “(A) In general.—The term ‘qualified elementary and secondary education expenses’ means— “(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school, “(ii) expenses for room and board, uniforms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance, and “(iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in school. Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. “(B) School.—The term ‘school’ means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.”. (3) Conforming amendments.—Section 530 is amended— (A) by striking “higher” each place it appears in subsections (b)(1) and (d)(2), and (B) by striking “higher” in the heading for subsection (d)(2). (d) Waiver of Age Limitations for Children With Special Needs.—Section 530(b)(1) (defining education individual retirement account) is amended by adding at the end the following flush sentence: “The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection Cd), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary).”. (e) Entities Permitted to Contribute to Accounts.—Section 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended by striking “The maximum amount which a contributor” and inserting “In the case of a contributor who is an individual, the maximum amount the contributor”. (f) Time When Contributions Deemed Made.— (1) In general.—Section 530(b) (relating to definitions and special rules), as amended by subsection (c)(2), is amended by adding at the end the following new paragraph: “(5) Time when contributions deemed made.—An individual shall be deemed to have made a contribution to an 115 STAT. 59education individual retirement account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).”. (2) Extension of time to return excess contributions.—Subparagraph (C) of section 530(d)(4) (relating to additional tax for distributions not. used for educational expenses) is amended— (A) by striking clause (i) and inserting the following new clause: “(i) such distribution is made before the first day of the sixth month of the taxable year following the taxable year, and”, and (B) by striking “due date of return” in the heading and inserting “certain date”. (g) Coordination With Hope and Lifetime Learning Credits and Qualified Tuition Programs.— (1) In general.—Section 530(d)(2)(C) is amended to read as follows: “(C) Coordination with hope and lifetime learning credits and qualified tuition programs.—For purposes of subparagraph (A)— “(i) Credit coordination.—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. “(ii) Coordination with qualified tuition programs.—If, with respect to an individual for any taxable year— “(I) the aggregate distributions during such year to which subparagraph (A) and section 529(c)(3)(B) apply, exceed “(II) the total amount of qualified education expenses (after the application of clause (i)) for such year, the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B).". (2) Conforming amendments.— (A) Subsection (e) of section 25A is amended to read as follows: “(e) Election Not to Have Section Apply.—A taxpayer may elect not to have this section apply with respect to the qualified tuition and related expenses of an individual for any taxable year.”. (B) Section 135(d)(2)(A) is amended by striking “allowable” and inserting “allowed”. (C) Section 530(d)(2)(D) is amended— (i) by striking “or credit” and inserting “, credit, or exclusion”, and115 STAT. 60 (ii) by striking “credit or deduction” in the heading and inserting “deduction, credit, or exclusion”. (D) Section 4973(e)(1) is amended by adding “and” at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B). (h) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.