A bill to amend the Internal Revenue Code of 1954 to provide for individual education accounts, and for other purposes.

Amends the Internal Revenue Code to allow an income tax deduction for contributions to an account established to pay the educational expenses (tuition, supplies, meals and lodging) of the taxpayer, the taxpayer's child, a ward of the taxpayer, or a descendant of a child of the taxpayer at an institution of higher education or a vocational school. Limits the amount of such deduction for any taxable year to $2,000 ($2,250 for joint returns).

Excludes from gross income payments or distributions from an education account to the extent such amounts are used to pay educational expenses. Excludes from gross income of an individual excess amounts paid by such individual to an education account which are returned before the due date of filing the individual tax return.

Exempts an education account from taxation. Prohibits certain transactions between the education account and individuals for whose benefit the account was established and individuals who contribute to such account.

Imposes a ten percent penalty tax on amounts distributed from an education account which are not used for educational expenses.

Directs the trustee of an education account to report on the account as required by the Internal Revenue Service. Imposes a penalty for failure to file such reports.