
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-554 Section 1(a)(7)[319(6)]]
[Document affected by Public Law 107-16 Section 401(a)(1)]
[Document affected by Public Law 107-16 Section 401(b)-(g)(1)]
[Document affected by Public Law 107-16 Section 401(g)(2)(C)]
[Document affected by Public Law 107-16 Section 402(a)(4)(A)]
[Document affected by Public Law 107-16 Section 402(a)(4)(C)]
[Document affected by Public Law 107-22 Section 1(a)(1)-(5)]
[CITE: 26USC530]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                   Subchapter F--Exempt Organizations
 
              PART VIII--HIGHER EDUCATION SAVINGS ENTITIES
 
Sec. 530. Education individual retirement accounts


(a) General rule

    An education individual retirement account shall be exempt from 
taxation under this subtitle. Notwithstanding the preceding sentence, 
the education individual retirement account shall be subject to the 
taxes imposed by section 511 (relating to imposition of tax on unrelated 
business income of charitable organizations).

(b) Definitions and special rules

    For purposes of this section--

             (1) Education individual retirement account

        The term ``education individual retirement account'' means a 
    trust created or organized in the United States exclusively for the 
    purpose of paying the qualified higher education expenses of an 
    individual who is the designated beneficiary of the trust (and 
    designated as an education individual retirement account at the time 
    created or organized), but only if the written governing instrument 
    creating the trust meets the following requirements:
            (A) No contribution will be accepted--
                (i) unless it is in cash,
                (ii) after the date on which such beneficiary attains 
            age 18, or
                (iii) except in the case of rollover contributions, if 
            such contribution would result in aggregate contributions 
            for the taxable year exceeding $500.

            (B) The trustee is a bank (as defined in section 408(n)) or 
        another person who demonstrates to the satisfaction of the 
        Secretary that the manner in which that person will administer 
        the trust will be consistent with the requirements of this 
        section or who has so demonstrated with respect to any 
        individual retirement plan.
            (C) No part of the trust assets will be invested in life 
        insurance contracts.
            (D) The assets of the trust shall not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            (E) Except as provided in subsection (d)(7), any balance to 
        the credit of the designated beneficiary on the date on which 
        the beneficiary attains age 30 shall be distributed within 30 
        days after such date to the beneficiary or, if the beneficiary 
        dies before attaining age 30, shall be distributed within 30 
        days after the date of death of such beneficiary.

               (2) Qualified higher education expenses

        (A) In general

            The term ``qualified higher education expenses'' has the 
        meaning given such term by section 529(e)(3), reduced as 
        provided in section 25A(g)(2).

        (B) Qualified State tuition programs

            Such term shall include amounts paid or incurred to purchase 
        tuition credits or certificates, or to make contributions to an 
        account, under a qualified State tuition program (as defined in 
        section 529(b)) for the benefit of the beneficiary of the 
        account.

                (3) Eligible educational institution

        The term ``eligible educational institution'' has the meaning 
    given such term by section 529(e)(5).

(c) Reduction in permitted contributions based on adjusted gross income

                           (1) In general

        The maximum amount which a contributor could otherwise make to 
    an account under this section shall be reduced by an amount which 
    bears the same ratio to such maximum amount as--
            (A) the excess of--
                (i) the contributor's modified adjusted gross income for 
            such taxable year, over
                (ii) $95,000 ($150,000 in the case of a joint return), 
            bears to

            (B) $15,000 ($10,000 in the case of a joint return).

                 (2) Modified adjusted gross income

        For purposes of paragraph (1), the term ``modified adjusted 
    gross income'' means the adjusted gross income of the taxpayer for 
    the taxable year increased by any amount excluded from gross income 
    under section 911, 931, or 933.

(d) Tax treatment of distributions

                           (1) In general

        Any distribution shall be includible in the gross income of the 
    distributee in the manner as provided in section 72.

      (2) Distributions for qualified higher education expenses

        (A) In general

            No amount shall be includible in gross income under 
        paragraph (1) if the qualified higher education expenses of the 
        designated beneficiary during the taxable year are not less than 
        the aggregate distributions during the taxable year.

        (B) Distributions in excess of expenses

            If such aggregate distributions exceed such expenses during 
        the taxable year, the amount otherwise includible in gross 
        income under paragraph (1) shall be reduced by the amount which 
        bears the same ratio to the amount which would be includible in 
        gross income under paragraph (1) (without regard to this 
        subparagraph) as the qualified higher education expenses bear to 
        such aggregate distributions.

        (C) Election to waive exclusion

            A taxpayer may elect to waive the application of this 
        paragraph for any taxable year.

        (D) Disallowance of excluded amounts as credit or deduction

            No deduction or credit shall be allowed to the taxpayer 
        under any other section of this chapter for any qualified 
        education expenses to the extent taken into account in 
        determining the amount of the exclusion under this paragraph.

     (3) Special rules for applying estate and gift taxes with 
                             respect to account

        Rules similar to the rules of paragraphs (2), (4), and (5) of 
    section 529(c) shall apply for purposes of this section.

         (4) Additional tax for distributions not used for 
                            educational expenses

        (A) In general

            The tax imposed by this chapter for any taxable year on any 
        taxpayer who receives a payment or distribution from an 
        education individual retirement account which is includible in 
        gross income shall be increased by 10 percent of the amount 
        which is so includible.

        (B) Exceptions

            Subparagraph (A) shall not apply if the payment or 
        distribution is--
                (i) made to a beneficiary (or to the estate of the 
            designated beneficiary) on or after the death of the 
            designated beneficiary,
                (ii) attributable to the designated beneficiary's being 
            disabled (within the meaning of section 72(m)(7)),
                (iii) made on account of a scholarship, allowance, or 
            payment described in section 25A(g)(2) received by the 
            account holder to the extent the amount of the payment or 
            distribution does not exceed the amount of the scholarship, 
            allowance, or payment, or
                (iv) an amount which is includible in gross income 
            solely because the taxpayer elected under paragraph (2)(C) 
            to waive the application of paragraph (2) for the taxable 
            year.

        (C) Contributions returned before due date of return

            Subparagraph (A) shall not apply to the distribution of any 
        contribution made during a taxable year on behalf of the 
        designated beneficiary if--
                (i) such distribution is made on or before the day 
            prescribed by law (including extensions of time) for filing 
            the beneficiary's return of tax for the taxable year or, if 
            the beneficiary is not required to file such a return, the 
            15th day of the 4th month of the taxable year following the 
            taxable year; and
                (ii) such distribution is accompanied by the amount of 
            net income attributable to such excess contribution.

        Any net income described in clause (ii) shall be included in 
        gross income for the taxable year in which such excess 
        contribution was made.

                     (5) Rollover contributions

        Paragraph (1) shall not apply to any amount paid or distributed 
    from an education individual retirement account to the extent that 
    the amount received is paid, not later than the 60th day after the 
    date of such payment or distribution, into another education 
    individual retirement account for the benefit of the same 
    beneficiary or a member of the family (within the meaning of section 
    529(e)(2)) of such beneficiary who has not attained age 30 as of 
    such date. The preceding sentence shall not apply to any payment or 
    distribution if it applied to any prior payment or distribution 
    during the 12-month period ending on the date of the payment or 
    distribution.

                      (6) Change in beneficiary

        Any change in the beneficiary of an education individual 
    retirement account shall not be treated as a distribution for 
    purposes of paragraph (1) if the new beneficiary is a member of the 
    family (as so defined) of the old beneficiary and has not attained 
    age 30 as of the date of such change.

               (7) Special rules for death and divorce

        Rules similar to the rules of paragraphs (7) and (8) of section 
    220(f) shall apply. In applying the preceding sentence, members of 
    the family (as so defined) of the designated beneficiary shall be 
    treated in the same manner as the spouse under such paragraph (8).

        (8) Deemed distribution on required distribution date

        In any case in which a distribution is required under subsection 
    (b)(1)(E), any balance to the credit of a designated beneficiary as 
    of the close of the 30-day period referred to in such subsection for 
    making such distribution shall be deemed distributed at the close of 
    such period.

(e) Tax treatment of accounts

    Rules similar to the rules of paragraphs (2) and (4) of section 
408(e) shall apply to any education individual retirement account.

(f) Community property laws

    This section shall be applied without regard to any community 
property laws.

(g) Custodial accounts

    For purposes of this section, a custodial account shall be treated 
as a trust if the assets of such account are held by a bank (as defined 
in section 408(n)) or another person who demonstrates, to the 
satisfaction of the Secretary, that the manner in which he will 
administer the account will be consistent with the requirements of this 
section, and if the custodial account would, except for the fact that it 
is not a trust, constitute an account described in subsection (b)(1). 
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.

(h) Reports

    The trustee of an education individual retirement account shall make 
such reports regarding such account to the Secretary and to the 
beneficiary of the account with respect to contributions, distributions, 
and such other matters as the Secretary may require. The reports 
required by this subsection shall be filed at such time and in such 
manner and furnished to such individuals at such time and in such manner 
as may be required.

(Added Pub. L. 105-34, title II, Sec. 213(a), Aug. 5, 1997, 111 Stat. 
813; amended Pub. L. 105-206, title VI, Sec. 6004(d)(1)-(3)(A), (5)-(8), 
July 22, 1998, 112 Stat. 793, 794; Pub. L. 106-554, Sec. 1(a)(7) [title 
III, Sec. 319(6)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646.)


                               Amendments

    2000--Subsec. (d)(4)(B)(iii). Pub. L. 106-554 substituted a comma 
for a semicolon before ``or'' at end.
    1998--Subsec. (b)(1). Pub. L. 105-206, Sec. 6004(d)(1), inserted 
``an individual who is'' before ``the designated beneficiary'' in 
introductory provisions.
    Subsec. (b)(1)(E). Pub. L. 105-206, Sec. 6004(d)(2)(A), amended 
subpar. (E) generally. Prior to amendment, subpar. (E) read as follows: 
``Upon the death of the designated beneficiary, any balance to the 
credit of the beneficiary shall be distributed within 30 days after the 
date of death to the estate of such beneficiary.''
    Subsec. (d)(1). Pub. L. 105-206, Sec. 6004(d)(3)(A), substituted 
``section 72'' for ``section 72(b)''.
    Subsec. (d)(2)(D). Pub. L. 105-206, Sec. 6004(d)(5), added subpar. 
(D).
    Subsec. (d)(4)(B)(iv). Pub. L. 105-206, Sec. 6004(d)(6), added cl. 
(iv).
    Subsec. (d)(4)(C). Pub. L. 105-206, Sec. 6004(d)(7), substituted 
``Contributions'' for ``Excess contributions'' in heading and amended 
text of introductory provisions and cl. (i) generally. Prior to 
amendment, text read as follows: ``Subparagraph (A) shall not apply to 
the distribution of any contribution made during a taxable year on 
behalf of a designated beneficiary to the extent that such contribution 
exceeds $500 if--
        ``(i) such distribution is received on or before the day 
    prescribed by law (including extensions of time) for filing such 
    contributor's return for such taxable year, and''.
    Subsec. (d)(5). Pub. L. 105-206, Sec. 6004(d)(8)(A), added first 
sentence and struck out former first sentence which read as follows: 
``Paragraph (1) shall not apply to any amount paid or distributed from 
an education individual retirement account to the extent that the amount 
received is paid into another education individual retirement account 
for the benefit of the same beneficiary or a member of the family 
(within the meaning of section 529(e)(2)) of such beneficiary not later 
than the 60th day after the date of such payment or distribution.''
    Subsec. (d)(6). Pub. L. 105-206, Sec. 6004(d)(8)(B), inserted before 
period at end ``and has not attained age 30 as of the date of such 
change''.
    Subsec. (d)(7). Pub. L. 105-206, Sec. 6004(d)(2)(B), inserted at end 
``In applying the preceding sentence, members of the family (as so 
defined) of the designated beneficiary shall be treated in the same 
manner as the spouse under such paragraph (8).''
    Subsec. (d)(8). Pub. L. 105-206, Sec. 6004(d)(2)(C), added par. (8).


                    Effective Date of 1998 Amendment

    Amendment by Pub. L. 105-206 effective, except as otherwise 
provided, as if included in the provisions of the Taxpayer Relief Act of 
1997, Pub. L. 105-34, to which such amendment relates, see section 6024 
of Pub. L. 105-206, set out as a note under section 1 of this title.


                             Effective Date

    Section applicable to taxable years beginning after Dec. 31, 1997, 
see section 213(f) of Pub. L. 105-34, set out as an Effective Date of 
1997 Amendment note under section 26 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 25A, 26, 72, 135, 221, 4973, 
4975, 6693 of this title.
