Savings Account for a Valued Education Act of 1985

Savings Account for a Valued Education Act of 1985 - Amends the Internal Revenue Code to permit an income tax deduction by an individual for contributions to education savings accounts (established for purposes of paying expenses at an institution of higher or vocational education). Limits the amount of contributions to $1,000 per year to any single account. Provides that no deduction will be allowed for amounts contributed to an account for an individual who has attained the age of 19 before the close of the calendar year in which the contribution is made. Provides for an annual inflation adjustment for the amount of the deduction which may be taken for contributions to such accounts. Limits the maximum amount of contributions to an education savings account to $18,000. Requires any assets in an education savings account for the benefit of an individual who attains age 28 to be distributed within 30 days after such individual attains such age to an eligible educational institution or to another education savings account established for the benefit of a sibling who has not attained the age of 28 to the extent the value of the contributions to such account is less than $18,000.

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 28, 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 education savings accounts from income taxes, except for tax on unrelated business income of charitable organizations. Provides penalties for engaging in prohibited transactions or pledging the account's assets. Imposes an additional penalty tax of ten percent on amounts from an education savings account included in income for certain reasons.

Imposes certain reporting requirements on the trustees of education savings accounts. Sets forth various definitions.

Permits the deduction for amounts contributed to an education savings account to be taken in arriving at adjusted gross income. Provides that contributions to an education savings account are not subject to gift tax.