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

Amends the Internal Revenue Code to allow an individual a 15 percent nonrefundable income tax credit for contributions made to a savings account established to pay the educational expenses (tuition, supplies, meals, and lodging) of an individual at an institution of higher education or a vocational school.

Limits the credit to $150 per year per account. Adjusts this limit annually for inflation. Provides that no account may have more than one beneficiary and that no individual may be a beneficiary of more than one account. Disallows the credit for contributions to an account maintained for any individual who, during the relevant taxable year, either attains age 21 or begins attending an eligible educational institution.

Identifies the criteria and requirements applicable to an education savings account.

Permits the exclusion from the gross income of the taxpayer-contributor of payments and distributions from an education savings account as long as such amounts: (1) are used exclusively for the educational expenses of the eligible beneficiary; (2) are rolled over into another education savings account; or (3) are distributions of excess contributions before the due date of the tax return.

Provides that for the ten tax years beginning when the beneficiary attains age 25, ten percent of the amount paid or distributed from an education savings account to pay the educational expenses of that individual shall be included in his or her gross income each year.

Exempts the education savings accounts themselves from taxation unless they cease to be proper education savings accounts because either the contributor-taxpayer engages in prohibited transactions or the account's beneficiary pledges the account as security.

Establishes penalties in the form of additional tax when account funds or distributions are used for other than educational purposes.

Requires that the trustee of an education savings account report to the Secretary of the Treasury and to the account's beneficiary on the maintenance of the account.

Establishes a six percent excise tax on excess contributions to an educational savings account.

Provides that contributions to an education savings account shall not be subject to gift tax.

Establishes a five percent excise tax on amounts connected with any prohibited transaction with respect to an education savings account.

Establishes a penalty for failure to file required reports concerning the education savings account.

Excludes from the gross income of an individual any distributions from an education savings account used exclusively for that individual's educational expenses (deferring taxation of these amounts until the beneficiary attains age 25).