Tax-free distributions from certain retirement plan assets invested under a virgin islands investment program

(a)

In general

Part I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by adding at the end the following new section:

409B.

Treatment of distributions from certain retirement plan assets invested under a virgin islands investment program

(a)

In general

If an individual under the age of 61 makes a one-time designation of an amount of qualified retirement savings as being under investment by the Virgin Islands Investment Program for at least 30 years, then, as of the close of the 10th year, such amount (and any earnings properly allocable to such amount) shall be treated for purposes of this title—(1)as a designated Roth account in the case of qualified retirement savings described in subsection (b)(1), or(2)as a Roth IRA in the case of qualified retirement savings described in subsection (b)(2).

No amount shall be includible in gross income by reason of the change in treatment under the preceding sentence.

(b)

Qualified retirement savings

For purposes of this section, the term qualified retirement savings means—(1)amounts attributable to elective deferrals under an applicable retirement plan, and(2)amounts held in an individual retirement plan which is not a Roth IRA.(c)

Virgin islands investment program

For purposes of this section—(1)

In general

The term Virgin Islands Investment Program means a program of the Virgin Islands which meets the requirements of paragraphs (2), (3), (4), and (5).(2)

Maximum amount accepted for management

A program meets the requirements of this paragraph if the amount accepted for management under the program does not exceed $50,000,000,000.(3)

Fees and taxes

A program meets the requirements of this paragraph if—(A)the fees charged by investment managers under the program do not exceed the fees customarily imposed by investment managers for managing like qualified retirement savings outside the Virgin Islands Investment Program,(B)the program imposes an annual tax (in addition to the fees permitted under subparagraph (A)) equal to—(i)1.5 percent of the amount designated for management under the program for the first 10 years of the account, and(ii)1 percent of the amount designated for management under the program for the remainder of the life of the account without regard to account balance, and(C)the 1 percent tax is imposed notwithstanding the Roth designation.(4)

Investment manager

A program meets the requirements of this paragraph if the investment managers under the program are chosen by the Governor of the Virgin Islands.(5)

Separate accounting

A program meets the requirements of this paragraph if the program—(A)establishes separate accounts for each type of qualified retirement savings held for the benefit of each individual and any earnings properly allocable to such assets, and(B)maintains separate recordkeeping with respect to each account.(d)

Use of 1 percent annual tax

(1)

Revenues to the virgin islands during first 20 years

(A)

In general

Revenues from the tax referred to in subsection (c)(3)(B) shall be collected, held, and distributed for the benefit of the Virgin Islands in a manner similar to section 7652(b) (relating to rum excise tax).(B)

Distributions to virgin islands

Funds and accrued interest described in subsection (d)(1)(A) may be paid from escrow to the Virgin Islands for expenditure only if—(i)the expenditure is pursuant to a qualified infrastructure development plan, and(ii)the expenditure is approved by the Secretary of the Interior as being pursuant to such plan.(C)

Qualified infrastructure development plan

For purposes of this paragraph, the term qualified infrastructure development plan means a plan for improving and enhancing the infrastructure of the Virgin Islands which is—(i)developed and approved by the committee described in subparagraph (D), and(ii)approved by the Governor of the Virgin Islands.(D)

Committee

The committee described in this subparagraph is a committee—(i)comprised of 5 members, each serving a term of either three or five years—(I)2 of whom are appointed by the Governor of the Virgin Islands, one for a 3-year and one for a 5-year term,(II)2 of whom are appointed by the Virgin Islands legislature, one for a 3-year and one for a 5-year term, and(III)1 of whom is appointed by the Secretary of the Interior for a 5-year term, and(ii)with respect to which a vacancy is filled in the manner in which the original appointment was made.(2)

Revenues to the united states and the virgin islands

(A)

During first 20 years

Revenues from the fee referred to in subsection (c)(3)(B) imposed on designated assets after the first 10 years under management by the Virgin Islands Investment Program shall be collected by the United States Treasury in a manner similar to section 7652, upon which—(i)26.67 percent of the proceeds shall be distributed to the Virgin Islands for the first 10 years of management, and(ii)half of the proceeds shall be distributed to the Virgin Islands for the next 10 years of management.(B)

After the first 20 years

Beginning in the 21st year, the entire 1 percent tax collected shall be retained by the United States Treasury.(C)

Minimum holding period

No withdrawals may be made by an investor from the account during the minimum holding period of ten years. Should the investor choose to withdraw money from the account during the minimum holding period, the investor would forfeit the tax advantages of the Fund. Any funds so withdrawn would be included in gross income and subject to Federal income tax, minus payments of the 1 percent tax.(3)

Early withdrawal

Should an investor withdraw the entire balance of the funds after the 10-year minimum holding period but before the end of the 30 years, his account will be liable for the entire 1 percent tax for each of the remaining years.(e)

Other definitions

For purposes of this section—(1)

Elective deferrals; applicable retirement plan

The terms elective deferrals and applicable retirement plan have the respective meanings given such terms by section 402A.(2)

Virgin islands

The term Virgin Islands means the United States Virgin Islands.(3)

Secretary of the interior

The term Secretary of the Interior means the Secretary of the Interior or his designee.

(b)

Clerical amendment

The table of sections for such part I is amended by adding at the end the following new item:

Sec. 409B. Treatment of distributions from certain retirement plan assets invested under a Virgin Islands investment program.

(c)

Effective date

The amendments made by this section shall take effect on the date of the enactment of this Act.