[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 3081 Introduced in Senate (IS)]
<DOC>
117th CONGRESS
1st Session
S. 3081
To amend the Internal Revenue Code of 1986 to permit withdrawals from
certain retirement plans for repayment of student loan debt, and for
other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
October 27, 2021
Mr. Paul introduced the following bill; which was read twice and
referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to permit withdrawals from
certain retirement plans for repayment of student loan debt, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Tax Free Education Act of 2021''.
SEC. 2. WITHDRAWALS FOR HIGHER EDUCATION EXPENSES.
(a) 401(k) Plans.--Paragraph (14) of section 401(k) of the Internal
Revenue Code of 1986 is amended by adding at the end the following new
subparagraph:
``(C) Distributions for qualified education
expenses.--
``(i) In general.--A distribution shall be
treated as made upon hardship of the employee
to the extent that the aggregate amount of such
distributions during the taxable year does not
exceed the lesser of--
``(I) the amount paid by the
taxpayer for qualified education
expenses for any individual during such
taxable year, or
``(II) $5,250.
``(ii) Distribution must be otherwise
disallowed.--Clause (i) shall not apply to any
distribution which is permissible under
paragraph (2)(B)(i) (including distributions
which would be treated as made upon hardship of
the employee without regard to this
subparagraph).
``(iii) No requirement to demonstrate
hardship.--Clause (i) shall apply without
regard to any requirement to demonstrate
financial need or hardship, or to demonstrate
that other assets are not available to pay the
qualified education expenses.
``(iv) Additional tax under section 72(t)
not to apply.--No tax shall be imposed under
section 72(t) on any amount treated as a
hardship distribution by reason of clause (i).
``(v) Qualified education expenses.--For
purposes of this subparagraph, the term
`qualified education expenses' has the meaning
given such term by section 530(b)(2)(A),
applied without regard to subparagraph (B) of
section 530(b)(2).''.
(b) 403(b) Plans.--Paragraph (11) of section 403(b) of the Internal
Revenue Code of 1986 is amended by adding at the end the following:
``Under rules similar to the rules of section 401(k)(14)(C), a
distribution shall be treated as made upon hardship of the employee to
the extent that the aggregate amount of such distributions during the
taxable year does not exceed the lesser of the amount paid by the
taxpayer for qualified education expenses during such taxable year, or
$5,250.''.
(c) 457 Plans.--Paragraph (1) of section 457(d) of the Internal
Revenue Code of 1986 is amended by adding at the end the following:
``Under rules similar to the rules of section 401(k)(14)(C) (and
without regard to whether the expenses are unforeseen), a distribution
shall be treated as made by reason of unforeseen emergency to the
extent that the aggregate amount of such distributions during the
taxable year does not exceed the lesser of the amount paid by the
taxpayer for qualified education expenses during such taxable year, or
$5,250.''.
(d) Effective Date.--The amendments made by this section shall
apply to distributions made after December 31, 2021.
SEC. 3. WITHDRAWALS FOR STUDENT LOAN EXPENSES.
(a) IRAs.--Paragraph (7) of section 72(t) of the Internal Revenue
Code of 1986 is amended by adding at the end the following new
subparagraph:
``(C) Student loans.--Such term shall include
amounts paid in repayment of any loan made to an
individual described in subparagraph (A) to assist the
individual in attending an educational organization
described in section 170(b)(1)(A)(ii).''.
(b) 401(k)s.--Clause (v) of section 401(k)(14)(C), as added by
section 2, is amended--
(1) by striking ``applied without regard'' and inserting
``applied--
``(I) without regard'';
(2) by striking the period at the end and inserting ``,
and''; and
(3) by adding at the end the following new subclause:
``(II) by treating amounts
described in section 72(t)(7)(C) as
qualified higher education expenses.''.
(c) Effective Date.--The amendment made by this section shall apply
to distributions made after December 31, 2021.
SEC. 4. EXCLUSION OF DISTRIBUTIONS FOR EDUCATIONAL EXPENSES.
(a) In General.--Section 402 of the Internal Revenue Code of 1986
is amended by adding at the end the following new subsection:
``(m) Distributions for Qualified Education Expenses.--
``(1) In general.--Gross income for the taxable year does
not include--
``(A) any distribution from a qualified cash or
deferred arrangement (as defined in section 401(k)(2)),
an annuity contract described in section 403(b), or an
eligible deferred compensation plan described in
section 457(b) which is maintained by an eligible
employer described in section 457(e)(1)(A), which is
treated as made upon hardship of the employee by reason
of section 401(k)(14)(C), the last sentence of section
403(b)(11), or the last sentence of section 457(d)(1),
or
``(B) any distribution from an individual
retirement account (as defined in section 408(a)) to
which section 72(t)(2)(E) applies.
``(2) Distributions must otherwise be includible.--
``(A) In general.--An amount shall be treated as
described in paragraph (1) only to the extent that such
amount would be includible in gross income without
regard to such paragraph.
``(B) Application of section 72.--In determining
whether a distribution would be includible in gross
income but for this subsection, rules similar to the
rules of subsection (l)(3)(B) shall apply (by taking
into account all retirement plans in which the taxpayer
is a participant).''.
(b) Coordination With Deductions and Credits.--
(1) Coordination with american opportunity and lifetime
learning credits.--
(A) In general.--Paragraph (2) of section 25A(g) of
the Internal Revenue Code of 1986 is amended by
redesignating subparagraph (C) as subparagraph (D), by
striking ``and'' at the end of subparagraph (B), and by
inserting after subparagraph (B) the following new
subparagraph:
``(C) a distribution from a qualified cash or
deferred arrangement (as defined in section 401(k)(2)),
an annuity contract described in section 403(b), an
eligible deferred compensation plan described in
section 457(b) which is maintained by an eligible
employer described in section 457(e)(1)(A), or an
individual retirement account (as defined in section
408(a)) which is excluded from gross income of the
distributee under section 402(m) (other than any
portion of such a distribution which is attributable to
the repayment of a loan described in section
72(t)(7)(C)), and''.
(B) Coordination with waiver of penalty.--
Subparagraph (B) of section 72(t)(7) is amended by
inserting ``(without regard to subparagraph (C)
thereof)'' before the period.
(2) Deduction for interest on education loans.--The first
sentence of paragraph (1) of section 221(e) of such Code is
amended--
(A) by striking ``or''; and
(B) by inserting before the period at the end the
following: ``, or for any amount paid with a
distribution which is excluded from gross income under
section 402(m)''.
(c) Effective Date.--The amendment made by this section shall apply
to distributions made after December 31, 2021.
SEC. 5. MODIFICATION OF INCLUSION OF EMPLOYER STUDENT LOAN PAYMENTS IN
EDUCATIONAL ASSISTANCE PROGRAMS.
(a) In General.--Subparagraph (B) of section 127(c)(1) of the
Internal Revenue Code of 1986 is amended to read as follows:
``(B) the payment, by an employer, of amounts in
repayment of any loan made to the employee to assist
the employee in attending an educational organization
described in section 170(b)(1)(A)(ii), and''.
(b) Denial of Double Benefit.--Paragraph (1) of section 221(e) of
the Internal Revenue Code of 1986, as amended by section 4, is further
amended by striking ``any indebtedness on a qualified education loan of
the taxpayer'' and inserting ``amounts in repayment of any loan
described in section 127(c)(1)(B)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2021.
SEC. 6. REPEAL OF CAP ON DEDUCTION FOR INTEREST ON EDUCATION LOANS.
(a) In General.--Section 221 of the Internal Revenue Code of 1986
is amended by striking subsections (b) and (f).
(b) Carryover of Excess Interest.--Section 221 of the Internal
Revenue Code of 1986, as so amended, is amended by inserting after
subsection (a) the following new subsection:
``(b) Carryover.--If the amount of the deduction allowable under
subsection (a) exceeds the taxable income of the taxpayer for the
taxable year (determined without regard to this section), then an
amount equal to such excess shall be treated as interest paid by the
taxpayer in the succeeding taxable year on a qualified education
loan.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 7. EMPLOYER ROTH CONTRIBUTIONS.
(a) In General.--Subsection (a) of section 402A of the Internal
Revenue Code of 1986 is amended--
(1) by striking ``and'' at the end of paragraph (1);
(2) by redesignating paragraph (2) as paragraph (3); and
(3) by inserting after paragraph (1) the following new
paragraph:
``(2) in the case of a qualified cash or deferred
arrangement (as defined in section 401(k)(2)), any designated
Roth employer contribution made pursuant to the arrangement
shall be treated for purposes of this chapter in the same
manner as contributions described in section 401(k)(3)(D)(ii),
except that such contribution shall not be excludable from
gross income, and''.
(b) Conforming Amendments.--
(1) Paragraph (1) of section 402A(b) of the Internal
Revenue Code of 1986 is amended--
(A) by striking ``may elect to make'' and inserting
``may elect--
``(A) to make'';
(B) by striking the period at the end and inserting
``, and''; and
(C) by adding at the end the following new
subparagraph:
``(B) in the case of a qualified cash or deferred
arrangement (as defined in section 401(k)(2)), to have
the employee's employer make designated Roth employer
contributions in lieu of all or a portion of the
matching or nonelective contributions the employee is
otherwise eligible to receive under the arrangement.''.
(2) Paragraph (2)(A) of section 402A(b) of such Code is
amended by striking ``of each employee'' and inserting ``and
designated Roth employer contributions with respect to each
employee''.
(3) Subparagraph (B) of section 402A(d)(2) of such Code is
amended by inserting ``, or elected to have made a designated
Roth employer contribution,'' after ``designated Roth
contribution'' both places it appears in clauses (i) and (ii).
(c) Designated Roth Employer Contribution.--Subsection (c) of
section 402A of the Internal Revenue Code of 1986 is amended--
(1) by inserting ``and Designated Roth Employer
Contributions'' after ``Designated Roth Contributions'' in the
heading, and
(2) by adding at the end the following new paragraph:
``(5) Designated roth employer contribution.--
``(A) In general.--The term `designated Roth
employer contribution' means any contribution described
in subparagraph (B) made under a qualified cash or
deferred arrangement (as defined in section 401(k)(2))
which--
``(i) is excludable from gross income of an
employee without regard to this section, and
``(ii) the employee designates (at such
time and in such manner as the Secretary may
prescribe) as not being so excludable.
``(B) Contributions described.--The contributions
described in this subparagraph are--
``(i) matching contributions (as defined in
section 401(m)(4)(A)) which meet the
requirements of subparagraphs (B) and (C) of
section 401(k)(2), and
``(ii) qualified nonelective contributions
(within the meaning of section 401(m)(4)(C)).
``(C) Designation limits.--The amount of matching
contributions and qualified nonelective contributions
which an employee may designate under subparagraph (A)
shall not exceed the excess (if any) of--
``(i) the maximum amount of such
contributions excludable from gross income of
the employee for the taxable year (without
regard to this section), over
``(ii) the aggregate amount of such
contributions with respect to the employee for
the taxable year which the employee does not
designate under subparagraph (A).''.
(d) Effective Date.--The amendments made by this section shall
apply to contributions made in taxable years beginning after December
31, 2021.
SEC. 8. MAXIMUM CONTRIBUTIONS.
(a) Elective Deferrals.--
(1) In general.--Subparagraph (B) of section 402(g)(1) of
the Internal Revenue Code of 1986 is amended by striking
``$15,000'' and inserting ``$25,000''.
(2) Cost-of-living adjustment.--Paragraph (4) of section
402(g) of such Code is amended--
(A) by striking ``$15,000'' and inserting
``$25,000'';
(B) by striking ``December 31, 2006'' and inserting
``December 31, 2022''; and
(C) by striking ``July 1, 2005'' and inserting
``July 1, 2021''.
(3) Conforming amendment.--Clause (ii) of section
402(g)(7)(A) of such Code is amended by striking ``$15,000''
and inserting ``$25,000''.
(b) 457 Plans.--
(1) In general.--Subparagraph (A) of section 457(e)(15) of
the Internal Revenue Code of 1986 is amended by striking
``$15,000'' and inserting ``$25,000''.
(2) Cost-of-living adjustment.--Subparagraph (B) of section
457(e)(15) of such Code is amended--
(A) by striking ``$15,000'' and inserting
``$25,000'';
(B) by striking ``December 31, 2006'' and inserting
``December 31, 2022''; and
(C) by striking ``July 1, 2005'' and inserting
``July 1, 2021''.
(c) Employed Individual 401(k)s.--Subsection (k) of section 401 of
the Internal Revenue Code of 1986 is amended by adding at the end the
following new paragraph:
``(16) Employed individual arrangement.--
``(A) In general.--A cash or deferred arrangement
shall not be treated as failing to meet any requirement
of this subsection solely because, under the
arrangement, an employee may elect to make additional
elective deferrals which are not subject to, and are
not taken into account under, paragraph (3) to a
separate account from other contributions made on
behalf of the employee under the arrangement, if--
``(i) all employees eligible to participate
in the arrangement are eligible to make such
election,
``(ii) the aggregate of all elective
deferrals made by the employee under the
arrangement does not exceed the limitation of
section 402(g), and
``(iii) no matching or nonelective
contributions may be made to such account or
with respect to elective deferrals contributed
to such account.
``(B) Distribution, etc. rules to apply.--The rules
of this subsection, other than paragraph (3), shall
apply to any account established under subparagraph
(A).
``(C) Elective deferral.--For purposes of this
paragraph, the term `elective deferral' means any
employer contribution under a qualified cash or
deferred arrangement to the extent not includible in
gross income for the taxable year under section
402(e)(3) (determined without regard to section
402(g)).''.
(d) Effective Date.--The amendments made by this section shall
apply to contributions made in taxable years beginning after December
31, 2021.
SEC. 9. DEDUCTION FOR QUALIFIED EDUCATION EXPENSES.
(a) In General.--Part VII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended--
(1) by redesignating section 224 as section 225; and
(2) by inserting after section 223 the following new
section:
``SEC. 224. QUALIFIED EDUCATION EXPENSES.
``(a) Deduction Allowed.--In the case of an individual, there shall
be allowed as a deduction for the taxable year an amount equal to the
qualified education expenses paid or incurred during such taxable year
for the taxpayer or any other individual.
``(b) Qualified Education Expenses.--For purposes of this section,
the term `qualified education expenses' means--
``(1) qualified education expenses as defined in section
530(b)(2)(A), applied without regard to subparagraph (B) of
section 530(b)(2), and
``(2) amounts paid in repayment of any loan made to an
individual to assist the individual in attending an educational
organization described in section 170(b)(1)(A)(ii).
``(c) Denial of Double Benefit.--For purposes of subsection (a),
the qualified education expenses with respect to any taxpayer shall be
reduced by--
``(1) the amount of any distribution from a qualified cash
or deferred arrangement (as defined in section 401(k)(2)), an
annuity contract described in section 403(b), an eligible
deferred compensation plan described in section 457(b) which is
maintained by an eligible employer described in section
457(e)(1)(A), or an individual retirement account (as defined
in section 408(a)) which is excluded from gross income of the
taxpayer under section 402(m) (other than any portion of such a
distribution which is attributable to the repayment of a loan
described in section 72(t)(7)(C)), and
``(2) the amount of any such expenses taken into account in
determining any credit or any other deduction under any other
provision of this chapter.
``(d) Carryforward of Unused Amount.--If any portion of the
deduction allowed by subsection (a) for the taxable year is disallowed
by reason of any limitation (including the amount of income of the
taxpayer), such portion shall be treated as a deduction allowable under
subsection (a) in the succeeding taxable year.''.
(b) Deduction Allowed Above the Line.--Subsection (a) of section 62
of the Internal Revenue Code of 1986 is amended by inserting after
paragraph 21 the following new paragraph:
``(22) Qualified education expenses.--The deduction allowed
by section 224.''.
(c) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 of the Internal Revenue Code of 1986 is
amended by striking the item relating to section 224 and by inserting
after the item relating to section 223 the following new items:
``Sec. 224. Qualified education expenses.
``Sec. 225. Cross reference.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2021.
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