To amend the Internal Revenue Code of 1986 to create Lifetime Savings Accounts.

March 31, 2004

Mr. SAM JOHNSON of Texas (for himself, Mr. ENGLISH, Mr. HAYWORTH, Mr. FOLEY, Mr. BRADY of Texas, Mr. RYAN of Wisconsin, Mr. TOOMEY, Mrs. MYRICK, Mr. KLINE, Mr. BARRETT of South Carolina, Mr. MURPHY, Mr. CHOCOLA, Mr. JONES of North Carolina, Mr. WELDON of Florida, Mr. FEENEY, Mr. GARRETT of New Jersey, Mr. HENSARLING, Mr. SHADEGG, Mr. PENCE, Mr. AKIN, Mr. GUTKNECHT, Mr. BARTLETT of Maryland, and Mr. BURGESS) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to create Lifetime Savings Accounts.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. LIFETIME SAVINGS ACCOUNTS.

(a) IN GENERAL- Subchapter F of Chapter 1 of the Internal Revenue Code of 1986 (relating to exempt organizations) is amended by adding at the end the following new part:

`PART IX--LIFETIME SAVINGS ACCOUNTS

`SEC. 530A. LIFETIME SAVINGS ACCOUNTS.

`(a) GENERAL RULE- A Lifetime Savings Account shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).

`(b) LIFETIME SAVINGS ACCOUNT- For purposes of this section, the term `Lifetime Savings Account' means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries and which is designated (in such manner as the Secretary shall prescribe) at the time of the establishment of the trust as a Lifetime Savings Account, but only if the written governing instrument creating the trust meets the following requirements:

`(1) Except in the case of a qualified rollover contribution described in subsection (d)--

`(A) no contribution will be accepted unless it is in cash, and

`(B) contributions will not be accepted for the calendar year in excess of the contribution limit specified in subsection (c)(1).

`(2) 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.

`(3) No part of the trust assets will be invested in life insurance contracts.

`(4) The interest of an individual in the balance of his account is nonforfeitable.

`(5) The assets of the trust shall not be commingled with other property except in a common trust fund or common investment fund.

`(c) TREATMENT OF CONTRIBUTIONS AND DISTRIBUTIONS-

`(1) CONTRIBUTION LIMIT-

`(A) IN GENERAL- The aggregate amount of contributions (other than qualified rollover contributions described in subsection (d)) for any calendar year to all Lifetime Savings Accounts maintained for the benefit of an individual shall not exceed $5,000.

`(B) COST-OF-LIVING ADJUSTMENT-

`(i) IN GENERAL- In the case of any calendar year after 2005, the $5,000 amount under subparagraph (A) shall be increased by an amount equal to--

`(I) such dollar amount, multiplied by

`(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting `calendar year 2004' for `calendar year 1992' in subparagraph (B) thereof.

`(ii) ROUNDING RULES- If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.

`(2) DISTRIBUTIONS- Any distribution from a Lifetime Savings Account shall not be includible in gross income.

`(d) QUALIFIED ROLLOVER CONTRIBUTION- For purposes of this section, the term `qualified rollover contribution' means a contribution to a Lifetime Savings Account--

`(1) from another such account of the same beneficiary, but only if such amount is contributed not later than the 60th day after the distribution from such other account,

`(2) from a Lifetime Savings Account of a spouse of the beneficiary of the account to which the contribution is made, but only if such amount is contributed not later than the 60th day after the distribution from such other account, and

`(3) before January 1, 2006, from--

`(A) a qualified tuition program pursuant to section 529(c)(3)(E), or

`(B) a Coverdell education savings account pursuant to section 530(d)(9).

`(e) LOSS OF TAXATION EXEMPTION OF ACCOUNT WHERE BENEFICIARY ENGAGES IN PROHIBITED TRANSACTION- Rules similar to the rules of paragraph (2) of section 408(e) shall apply to any Lifetime Savings Account.

`(f) CUSTODIAL ACCOUNTS- For purposes of this section, a custodial account or an annuity contract issued by an insurance company qualified to do business in a State shall be treated as a trust under this section if--

`(1) the custodial account or annuity contract would, except for the fact that it is not a trust, constitute a trust which meets the requirements of subsection (b), and

`(2) in the case of a custodial account, 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.

For purposes of this title, in the case of a custodial account or annuity contract treated as a trust by reason of the preceding sentence, the person holding the assets of such account or holding such annuity contract shall be treated as the trustee thereof.

`(g) REPORTS- The trustee of a Lifetime Savings 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.'.

(b) TAX ON EXCESS CONTRIBUTIONS-

(1) IN GENERAL- Subsection (a) of section 4973 of the Internal Revenue Code of 1986 (relating to tax on excess contributions to certain tax-favored accounts and annuities) is amended by striking `or'

at the end of paragraph (4), by inserting `or' at the end of paragraph (5), and by inserting after paragraph (5) the following new paragraph:

`(6) a Lifetime Savings Account (as defined in section 530A),'.

(2) EXCESS CONTRIBUTION- Section 4973 of such Code is amended by adding at the end the following new subsection:

`(h) EXCESS CONTRIBUTIONS TO LIFETIME SAVINGS ACCOUNTS- For purposes of this section--

`(1) IN GENERAL- In the case of Lifetime Savings Accounts (within the meaning of section 530A), the term `excess contributions' means the sum of--

`(A) the amount by which the amount contributed for the calendar year to such accounts (other than qualified rollover contributions (as defined in section 530A(d))) exceeds the contribution limit under section 530A(c)(1), and

`(B) the amount determined under this subsection for the preceding calendar year, reduced by the excess (if any) of the maximum amount allowable as a contribution under section 530A(c)(1) for the calendar year over the amount contributed to the accounts for the calendar year.

`(2) SPECIAL RULE- A contribution shall not be taken into account under paragraph (1) if such contribution (together with the amount of net income attributable to such contribution) is returned to the beneficiary before July 1 of the year following the year in which the contribution is made.'.

(c) FAILURE TO PROVIDE REPORTS ON LIFETIME SAVINGS ACCOUNTS- Paragraph (2) of section 6693(a) of the Internal Revenue Code of 1986 (relating to failure to provide reports on individual retirement accounts or annuities) is amended by striking `and' at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting `, and', and by adding at the end the following new subparagraph:

`(F) section 530A(g) (relating to Lifetime Savings Accounts).'.

(d) ROLLOVERS FROM CERTAIN OTHER TAX-FREE ACCOUNTS-

(1) QUALIFIED STATE TUITION PLANS- Paragraph (3) of section 529(c) of the Internal Revenue Code of 1986 (relating to distributions) is amended by adding at the end the following new subparagraph:

`(E) ROLLOVERS TO LIFETIME SAVINGS ACCOUNTS-

`(i) IN GENERAL- Subparagraph (A) shall not apply to the qualified portion of any distribution which, before January 1, 2006, and within 60 days of such distribution, is transferred to a Lifetime Savings Account (within the meaning of section 530A) of the designated beneficiary. This subparagraph shall only apply to distributions in accordance with the previous sentence from an account which was in existence with respect to such designated beneficiary on December 31, 2003.

`(ii) QUALIFIED PORTION- For purposes of this subparagraph, the term `qualified portion' means the amount equal to the sum of--

`(I) the lesser of $50,000 or the amount which is in the account of the designated beneficiary on December 31, 2003,

`(II) any contributions to such account for the taxable year beginning after December 31, 2004, and before January 1, 2005, and

`(III) any earnings of such account for such year.

`(iii) LIMITATION- The sum of the amounts taken into account under clause (ii)(II) with respect to all accounts of the designated beneficiary plus any amounts with respect to such designated beneficiary taken into account under section 530(d)(9)(B)(ii) shall not exceed the sum of $5,000 plus the earnings attributable to such amounts.'.

(2) COVERDELL EDUCATION SAVINGS ACCOUNTS- Subsection (d) of section 530 of such Code (relating to tax treatment of distributions) is amended by inserting at the end the following new paragraph:

`(9) ROLLOVERS TO LIFETIME SAVINGS ACCOUNTS-

`(A) IN GENERAL- Paragraph (1) shall not apply to the qualified portion of any amount paid or distributed from a Coverdell education savings account to the extent that the amount received is paid, before January 1, 2006, and not later than the 60th day after the date of such payment or distribution, into a Lifetime Savings Account (within the meaning of section 530A) for the benefit of the same beneficiary. This paragraph shall only apply to amounts paid or distributed in accordance with the preceding sentence from an account which was in existence with respect to such beneficiary on December 31, 2003.

`(B) QUALIFIED PORTION- For purposes of this paragraph, the term `qualified portion' means the amount equal to the sum of--

`(i) the amount which is in the account of the beneficiary on December 31, 2003,

`(ii) any contributions to such account for the taxable year beginning after December 31, 2004, and before January 1, 2005, and

`(iii) any earnings of such account for such year.

`(C) LIMITATION- The sum of the amounts taken into account under subparagraph (B)(ii) with respect to all accounts of the beneficiary plus any amounts with respect to such beneficiary taken into account under section 529(c)(3)(E)(ii)(II) shall not exceed the sum of $5,000 plus the earnings attributable to such amounts.'.

(e) CONFORMING AMENDMENT- The table of parts for subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

`Part IX. Lifetime Savings Accounts.'.

(f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

END