Family Education Assistance Act of 1987

Family Education Assistance Act of 1987 - Amends the Internal Revenue Code to allow an individual taxpayer an income tax deduction for contributions to a savings account established to pay the education expenses (tuition, supplies, meals, and lodging) at an institution of higher education or a vocational school of a child of the taxpayer, of a child of a brother, sister, stepbrother, or stepsister of the taxpayer, of an individual for whom the taxpayer has been appointed as guardian, or of a descendant of a child of the taxpayer. Limits the amount of such deduction to $1,500 (adjusted for inflation) for each account per calendar year. Provides that no account may have more than one beneficiary and that no individual may be a beneficiary of more than one account. Disallows any deduction for contributions to an education savings account for any beneficiary who has attained the age of 19.

Requires any balance in an education savings account to be distributed after the individual for whose benefit the account is established attains age 30. Includes the distributions from an education savings account in the gross income of the payee or distributee except for those amounts distributed or used to pay educational expenses incurred by the individual for whose benefit the account is established.

Provides that an education savings account is exempt from taxation except for the tax on unrelated business income. Revokes the tax exemption of the account where the individual for whose benefit the account is established engages in certain prohibited transactions with the account.

Imposes a ten percent penalty tax on distributions which are not used for educational expenses.

Requires the trustee of an education savings account to file reports with the Secretary of the Treasury on the maintenance of the account. Imposes a penalty for failure to file any required report.

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

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.

Provides that distributions from an education savings account shall not be taken into account in determining support to the extent such distribution is excluded from gross income of the individual for whose benefit the account has been established.