A bill to amend the Internal Revenue Code of 1986 to provide for the establishment of, and the deduction of contributions to, education savings accounts.

Amends the Internal Revenue Code to allow an individual taxpayer an income tax deduction for contributions to a savings account established to pay the educational expenses (tuition, supplies, meals, and lodging) of an eligible beneficiary at an institution of higher education or a vocational school. Limits the amount of such deduction to $1,000 (adjusted for inflation) for each account per calendar year. Disallows any deduction for contributions to an account for individuals who have attained age 19. Provides that no account may have more than one beneficiary and that no individual may be a beneficiary of more than one account.

Permits the deferral of income tax on payments and distributions from such education savings accounts as long as such amounts are used exclusively for educational expenses. Imposes penalties for the use of account funds for other than educational purposes.

Requires that the trustee of an education savings account file reports with the Secretary of the Treasury on the maintenance of the account. Imposes penalties for not filing required reports.

Extends the deduction for contributions to an educational savings account to taxpayers who do not otherwise itemize deductions.

Requires that amounts distributed from an education savings account be included in the gross income of the recipient unless the distribution is made to another education savings account or to an eligible education institution, or unless the distribution is a distribution of excess contributions before the due date of the tax return. Provides that for the ten tax years beginning when the individual attains age 27, ten percent of the amount paid or distributed from an education savings account to pay education expenses incurred by the individual for whose benefit the account was established shall be included in the gross income of the individual each year.

Exempts such education savings accounts from taxation, except for the tax on unrelated business income of a charitable organization. Provides that contributions to an education savings account are not subject to gift tax.

Imposes: (1) a six percent excise tax on excess contributions to an education savings account; and (2) a five percent excise tax on amounts connected with any prohibited transaction with respect to such an account.

Excludes from the gross income of an individual distributions from an education savings account used exclusively for that individual's educational expenses.