[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 682 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 682

  To amend the Internal Revenue Code of 1986 to encourage savings and 
   investment through individual retirement accounts, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 25, 1995

  Mr. Thomas of California (for himself and Mr. Neal) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to encourage savings and 
   investment through individual retirement accounts, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Savings and 
Investment Incentive Act of 1995''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

                 TITLE I--RETIREMENT SAVINGS INCENTIVES

                Subtitle A--Restoration of IRA Deduction

SEC. 101. RESTORATION OF IRA DEDUCTION.

    (a) Phase-Up of Income Limits.--
            (1) In general.--Subparagraph (B) of section 219(g)(3) 
        (relating to applicable dollar amount) is amended to read as 
        follows:
                    ``(B) Applicable dollar amount.--The term 
                `applicable dollar amount' means the following:
                            ``(i) In the case of a taxpayer filing a 
                        joint return:

                                                         The applicable
``For taxable years beginning in:                     dollar amount is:
    1995..........................................              $65,000
    1996..........................................              $90,000
    1997..........................................             $115,000
    1998..........................................            $140,000.
                            ``(ii) In the case of any other taxpayer 
                        (other than a married individual filing a 
                        separate return):

                                                         The applicable
``For taxable years beginning in:                     dollar amount is:
    1995..........................................              $50,000
    1996..........................................              $75,000
    1997..........................................             $100,000
    1998..........................................            $125,000.
                            ``(iii) In the case of a married individual 
                        filing a separate return, zero.''.
            (2) Unlinking of spousal rule.--Paragraph (1) of section 
        219(g) (relating to limitation on deduction for active 
        participants in certain pension plans) is amended by striking 
        ``or the individual's spouse''.
    (b) Termination of Income Limits.--
            (1) In General.--Section 219 (relating to deduction for 
        retirement savings), as amended by section 102, is amended by 
        striking subsection (g) and by redesignating subsections (h) 
        and (i) as subsection (g) and (h), respectively.
            (2) Technical and conforming amendments.--
                    (A) Subsection (f) of section 219 is amended by 
                striking paragraph (7).
                    (B) Paragraph (5) of section 408(d) is amended by 
                striking the last sentence.
                    (C) Section 408(o) is amended by adding at the end 
                the following new paragraph:
            ``(5) Termination.--This subsection shall not apply to any 
        designated nondeductible contribution for any taxable year 
        beginning after December 31, 1998.''.
                    (D) Section 408A(c)(2)(A), as added by section 111, 
                is amended by striking ``(computed without regard to 
                subsections (b)(4) and (g) of such section)'' and 
                inserting ``(computed without regard to section 
                219(b)(4))''.
                    (E) Subsection (b) of section 4973 is amended by 
                striking the last sentence.
    (c) Effective Dates.--
            (1) Phase-up.--The amendments made by subsection (a) shall 
        apply to taxable years beginning after December 31, 1994.
            (2) Termination.--The amendments made by subsection (b) 
        shall apply to taxable years beginning after December 31, 1998.

SEC. 102. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.

    (a) In General.--Section 219, as amended by section 101(a), is 
amended by redesignating subsection (h) as subsection (i) and by 
inserting after subsection (g) the following new subsection:
    ``(h) Cost-of-Living Adjustments.--
            ``(1) Deduction amount.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 1995, the $2,000 
                amount under subsection (b)(1)(A) shall be increased by 
                an amount equal to the product of $2,000 and the cost-
                of-living adjustment for the calendar year.
                    ``(B) Rounding to next lowest $500.--If the amount 
                to which $2,000 would be increased under subparagraph 
                (A) is not a multiple of $500, such amount shall be 
                rounded to the next lowest multiple of $500.
            ``(2) Related amounts.--Each of the dollar amounts 
        contained in subsection (c)(2) shall be increased at the same 
        time, and by the same amount, as the increase under paragraph 
        (1).
            ``(3) Cost-of-living adjustment.--For purposes of this 
        subsection:
                    ``(A) In general.--The cost-of-living adjustment 
                for any calendar year is the percentage (if any) by 
                which--
                            ``(i) the CPI for such calendar year, 
                        exceeds
                            ``(ii) the CPI for 1994.
                    ``(B) CPI for any calendar year.--The CPI for any 
                calendar year shall be determined in the same manner as 
                under section 1(f)(4).''.
    (b) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in excess of 
        $2,000 on behalf of any individual'' and inserting ``on behalf 
        of any individual in excess of the amount in effect for such 
        taxable year under section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (3) Section 408(j) is amended by striking ``$2,000''.

SEC. 103. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

    (a) Spousal IRA Computed on Basis of Compensation of Both 
Spouses.--Subsection (c) of section 219 (relating to special rules for 
certain married individuals) is amended to read as follows:
    ``(c) Special Rules for Certain Married Individuals.--
            ``(1) In general.--In the case of an individual to whom 
        this paragraph applies for the taxable year, the limitation of 
        paragraph (1) of subsection (b) shall be equal to the lesser 
        of--
                    ``(A) $2,000, or
                    ``(B) the sum of--
                            ``(i) the compensation includible in such 
                        individual's gross income for the taxable year, 
                        plus
                            ``(ii) the compensation includible in the 
                        gross income of such individual's spouse for 
                        the taxable year reduced by the amount 
                        allowable as a deduction under subsection (a) 
                        to such spouse for such taxable year.
            ``(2) Individuals to whom paragraph (1) applies.--Paragraph 
        (1) shall apply to any individual if--
                    ``(A) such individual files a joint return for the 
                taxable year, and
                    ``(B) the amount of compensation (if any) 
                includible in such individual's gross income for the 
                taxable year is less than the compensation includible 
                in the gross income of such individual's spouse for the 
                taxable year.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 219(f) (relating to other 
        definitions and special rules) is amended by striking 
        ``subsections (b) and (c)'' and inserting ``subsection (b)''.
            (2) Paragraph (2) of section 219(h), as added by section 
        102, is amended by striking ``Each of the dollar amounts'' and 
        inserting ``The dollar amount''.
            (3) Section 408(d)(5) is amended by striking ``$2,250'' and 
        inserting ``$2,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

SEC. 104. CERTAIN COINS AND BULLION NOT TREATED AS COLLECTIBLES.

    (a) In General.--Paragraph (3) of section 408(m) (relating to 
exception for certain coin) is amended to read as follows:
            ``(3) Exception for certain coins and bullion.--For 
        purposes of this subsection, the term `collectible' shall not 
        include--
                    ``(A) any coin certified by a recognized grading 
                service and traded on a nationally recognized 
                electronic network, or listed by a recognized wholesale 
                reporting service, and--
                            ``(i) which is or was at any time legal 
                        tender in the country of issuance, or
                            ``(ii) issued under the laws of any State, 
                        and
                    ``(B) any gold, silver, platinum, or palladium 
                bullion (whether fabricated in the form of a coin or 
                otherwise) of a fineness equal to or exceeding the 
                minimum fineness required for metals which may be 
                delivered in satisfaction of a regulated futures 
                contract subject to regulation by the Commodity Futures 
                Trading Commission under the Commodity Exchange Act,
        if such coin or bullion is in the physical possession of a 
        trustee described under subsection (a) of this section.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1994.

SEC. 105. COORDINATION OF IRA DEDUCTION LIMIT WITH ELECTIVE DEFERRAL 
              LIMIT.

    (a) In General.--Section 219(b) (relating to maximum amount of 
deduction) is amended by adding at the end the following new paragraph:
            ``(4) Coordination with elective deferral limit.--The 
        amount determined under paragraph (1) or subsection (c)(1) with 
        respect to any individual for any taxable year shall not exceed 
        the excess (if any) of--
                    ``(A) the maximum amount of elective deferrals of 
                the individual which are excludable from gross income 
                for the taxable year under section 402(g)(1), over
                    ``(B) the amount so excluded.''.
    (b) Conforming Amendment.--Section 219(c), as amended by section 
104, is amended by adding at the end the following new paragraph:
            ``(3) Cross reference.--

                                ``For reduction in paragraph (1) 
amount, see subsection (b)(4).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.

                Subtitle B--Nondeductible Tax-Free IRAs

SEC. 111. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT 
              ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to pension, profit-sharing, stock bonus plans, etc.) is 
amended by inserting after section 408 the following new section:

``SEC. 408A. IRA PLUS ACCOUNTS.

    ``(a) General Rule.--Except as provided in this section, an IRA 
Plus account shall be treated for purposes of this title in the same 
manner as an individual retirement plan.
    ``(b) IRA Plus Account.--For purposes of this title, the term `IRA 
Plus account' means an individual retirement plan which is designated 
at the time of establishment of the plan as an IRA Plus account.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be allowed 
        under section 219 for a contribution to an IRA Plus account.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all IRA Plus accounts 
        maintained for the benefit of an individual shall not exceed 
        the excess (if any) of--
                    ``(A) the maximum amount allowable as a deduction 
                under section 219 with respect to such individual for 
                such taxable year (computed without regard to 
                subsections (b)(4) and (g) of such section), over
                    ``(B) the amount so allowed.
            ``(3) Rollover contributions.--
                    ``(A) In general.--No rollover contribution may be 
                made to an IRA Plus account unless it is a qualified 
                transfer.
                    ``(B) Coordination with limit.--A rollover 
                contribution shall not be taken into account for 
                purposes of paragraph (2).
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as provided in this subsection, 
        any amount paid or distributed out of an IRA Plus account shall 
        not be included in the gross income of the distributee.
            ``(2) Exception for earnings on contributions held less 
        than 5 years.--
                    ``(A) In general.--Any amount distributed out of an 
                IRA Plus account which consists of earnings allocable 
                to contributions made to the account during the 5-year 
                period ending on the day before such distribution shall 
                be included in the gross income of the distributee for 
                the taxable year in which the distribution occurs.
                    ``(B) Cross reference.--

                                ``For additional tax for early 
withdrawal, see section 72(t).
                    ``(C) Ordering rule.--
                            ``(i) First-in, first-out rule.--
                        Distributions from an IRA Plus account shall be 
                        treated as having been made--
                                    ``(I) first from the earliest 
                                contribution (and earnings allocable 
                                thereto) remaining in the account at 
                                the time of the distribution, and
                                    ``(II) then from other 
                                contributions (and earnings allocable 
                                thereto) in the order in which made.
                            ``(ii) Allocations between contributions 
                        and earnings.--Any portion of a distribution 
                        allocated to a contribution (and earnings 
                        allocable thereto) shall be treated as 
                        allocated first to the earnings and then to the 
                        contribution.
                            ``(iii) Allocation of earnings.--Earnings 
                        shall be allocated to a contribution in such 
                        manner as the Secretary may by regulations 
                        prescribe.
                            ``(iv) Contributions in same year.--Except 
                        as provided in regulations, all contributions 
                        made during the same taxable year may be 
                        treated as 1 contribution for purposes of this 
                        subparagraph.
            ``(3) Rollovers.--
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any distribution which is transferred in a qualified 
                transfer to another IRA Plus account.
                    ``(B) Contribution period.--For purposes of 
                paragraph (2), the IRA Plus account to which any 
                contributions are transferred from another IRA Plus 
                account shall be treated as having held such 
                contributions during any period such contributions were 
                held (or are treated as held under this subparagraph) 
                by the account from which transferred.
            ``(4) Special rules relating to certain transfers.--
                    ``(A) In general.--Notwithstanding any other 
                provision of law, in the case of a qualified transfer 
                to an IRA Plus account from an individual retirement 
                plan which is not an IRA Plus account--
                            ``(i) there shall be included in gross 
                        income any amount which, but for the qualified 
                        transfer, would be includible in gross income, 
                        but
                            ``(ii) section 72(t) shall not apply to 
                        such amount.
                    ``(B) Time for inclusion.--In the case of any 
                qualified transfer which occurs before January 1, 1997, 
                any amount includible in gross income under 
                subparagraph (A) with respect to such contribution 
                shall be includible ratably over the 4-taxable year 
                period beginning in the taxable year in which the 
                amount was paid or distributed out of the individual 
                retirement plan.
    ``(e) Qualified Transfer.--For purposes of this section, the term 
`qualified transfer' means a transfer to an IRA Plus account from 
another such account or from an individual retirement plan but only if 
such transfer meets the requirements of section 408(d)(3).''.
    (b) Early Withdrawal Penalty.--Section 72(t), as amended by section 
201(c), is amended by adding at the end the following new paragraph:
            ``(8) Rules relating to ira plus accounts.--In the case of 
        an IRA Plus account under section 408A--
                    ``(A) this subsection shall only apply to 
                distributions out of such account which consist of 
                earnings allocable to contributions made to the account 
                during the 5-year period ending on the day before such 
                distribution, and
                    ``(B) paragraph (2)(A)(i) shall not apply to any 
                distribution described in subparagraph (A).''.
    (c) Excess Contributions.--Section 4973(b) is amended by adding at 
the end the following new sentence: ``For purposes of paragraphs (1)(B) 
and (2)(C), the amount allowable as a deduction under section 219 shall 
be computed without regard to section 408A.''
    (d) Conforming Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 is amended by inserting after the 
item relating to section 408 the following new item:

                              ``Sec. 408A. IRA Plus accounts.''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 1994.
            (2) Qualified transfers in 1994.--The amendments made by 
        this section shall apply to any qualified transfer during any 
        taxable year beginning in 1994.

                  TITLE II--PENALTY-FREE DISTRIBUTIONS

SEC. 201. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
              TO PURCHASE FIRST HOMES, TO PAY HIGHER EDUCATION OR 
              FINANCIALLY DEVASTATING MEDICAL EXPENSES, OR TO PAY LONG-
              TERM CARE INSURANCE PREMIUMS.

    (a) In General.--Paragraph (2) of section 72(t) (relating to 
exceptions to 10-percent additional tax on early distributions from 
qualified retirement plans) is amended by adding at the end the 
following new subparagraph:
                    ``(D) Distributions from certain plans for first 
                home purchases, educational expenses, or long-term care 
                insurance expenses.--Distributions to an individual 
                from an individual retirement plan, or from amounts 
                attributable to employer contributions made pursuant to 
                elective deferrals described in subparagraph (A) or (C) 
                of section 402(g)(3) or section 501(c)(18)(D)(iii)--
                            ``(i) which are qualified first-time 
                        homebuyer distributions (as defined in 
                        paragraph (6)),
                            ``(ii) to the extent such distributions do 
                        not exceed the qualified higher education 
                        expenses (as defined in paragraph (7)) of the 
                        taxpayer for the taxable year, or
                            ``(iii) to the extent such distributions do 
                        not exceed the amounts paid by the taxpayer 
                        during the taxable year for coverage of the 
                        taxpayer or the taxpayer's spouse under any 
                        long-term care insurance contract (as defined 
                        in section 7705).''.
    (b) Financially Devastating Medical Expenses.--
            (1) In general.--Section 72(t)(3)(A) is amended by striking 
        ``(B),''.
            (2) Certain lineal descendants and ancestors treated as 
        dependents.--Subparagraph (B) of section 72(t)(2) is amended by 
        striking ``medical care'' and all that follows and inserting 
        ``medical care determined--
                            ``(i) without regard to whether the 
                        employee itemizes deductions for such taxable 
                        year, and
                            ``(ii) by treating such employee's 
                        dependents as including--
                                    ``(I) all children and 
                                grandchildren of the employee or such 
                                employee's spouse, and
                                    ``(II) all ancestors of the 
                                employee or such employee's spouse.''.
            (3) Conforming amendment.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``or (C)'' and inserting ``, 
        (C) or (D)''.
    (c) Penalty-Free Distributions for Certain Unemployed 
Individuals.--Paragraph (2) of section 72(t) is amended by adding at 
the end the following new subparagraph:
                    ``(E) Distributions to unemployed individuals.--A 
                distribution from an individual retirement plan to an 
                individual after separation from employment, if--
                            ``(i) such individual has received 
                        unemployment compensation for 12 consecutive 
                        weeks under any Federal or State unemployment 
                        compensation law by reason of such separation, 
                        and
                            ``(ii) such distributions are made during 
                        any taxable year during which such unemployment 
                        compensation is paid or the succeeding taxable 
                        year.
                To the extent provided in regulations, a self-employed 
                individual shall be treated as meeting the requirements 
                of clause (i) if, under Federal or State law, the 
                individual would have received unemployment 
                compensation but for the fact the individual was self-
                employed.''.
    (d) Definitions.--
            (1) Section 72(t) is amended by adding at the end the 
        following new paragraphs:
            ``(6) Qualified first-time homebuyer distributions.--For 
        purposes of paragraph (2)(D)(i):
                    ``(A) In general.--The term `qualified first-time 
                homebuyer distribution' means any payment or 
                distribution received by an individual to the extent 
                such payment or distribution is used by the individual 
                before the close of the 60th day after the day on which 
                such payment or distribution is received to pay 
                qualified acquisition costs with respect to a principal 
                residence of a first-time homebuyer who is such 
                individual, the spouse of such individual, or any 
                child, grandchild, or ancestor of such individual or 
                the individual's spouse.
                    ``(B) Qualified acquisition costs.--For purposes of 
                this paragraph, the term `qualified acquisition costs' 
                means the costs of acquiring, constructing, or 
                reconstructing a residence. Such term includes any 
                usual or reasonable settlement, financing, or other 
                closing costs.
                    ``(C) First-time homebuyer; other definitions.--For 
                purposes of this paragraph:
                            ``(i) First-time homebuyer.--The term 
                        `first-time homebuyer' means any individual 
                        if--
                                    ``(I) such individual (and if 
                                married, such individual's spouse) had 
                                no present ownership interest in a 
                                principal residence during the 2-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (a)(6), (h), or 
                                (k) of section 1034 did not suspend the 
                                running of any period of time specified 
                                in section 1034 with respect to such 
                                individual on the day before the date 
                                the distribution is applied pursuant to 
                                subparagraph (A)(ii).
                            ``(ii) Principal residence.--The term 
                        `principal residence' has the same meaning as 
                        when used in section 1034.
                            ``(iii) Date of acquisition.--The term 
                        `date of acquisition' means the date--
                                    ``(I) on which a binding contract 
                                to acquire the principal residence to 
                                which subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which construction or 
                                reconstruction of such a principal 
                                residence is commenced.
                    ``(D) Special rule where delay in acquisition.--If 
                any distribution from any individual retirement plan 
                fails to meet the requirements of subparagraph (A) 
                solely by reason of a delay or cancellation of the 
                purchase or construction of the residence, the amount 
                of the distribution may be contributed to an individual 
                retirement plan as provided in section 408(d)(3)(A)(i) 
                (determined by substituting `120 days' for `60 days' in 
                such section), except that--
                            ``(i) section 408(d)(3)(B) shall not be 
                        applied to such contribution, and
                            ``(ii) such amount shall not be taken into 
                        account in determining whether section 
                        408(d)(3)(A)(i) applies to any other amount.
            ``(7) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)(ii):
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition, fees, books, 
                supplies, and equipment required for the enrollment or 
                attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any child (as defined in section 
                        151(c)(3)), grandchild, or ancestor of the 
                        taxpayer or the taxpayer's spouse,
                at an eligible educational institution (as defined in 
                section 135(c)(3)).
                    ``(B) Coordination with savings bond provisions.--
                The amount of qualified higher education expenses for 
                any taxable year shall be reduced by any amount 
                excludable from gross income under section 135.''.
            (2) Chapter 79 is amended by adding at the end the 
        following new section:

``SEC. 7705. LONG-TERM CARE INSURANCE CONTRACT.

    ``(a) General Rule.--For purposes of the provisions of this title 
which refer to this section--
            ``(1) In general.--The term `long-term care insurance 
        contract' means any insurance contract issued if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services and benefits incidental to such coverage,
                    ``(B) such contract does not cover expenses 
                incurred for services or items to the extent that such 
                expenses are reimbursable under title XVIII of the 
                Social Security Act or would be so reimbursable but for 
                the application of a deductible or coinsurance amount,
                    ``(C) such contract is guaranteed renewable,
                    ``(D) such contract does not have any cash 
                surrender value, and
                    ``(E) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are 
                to be applied as a reduction in future premiums or to 
                increase future benefits.
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A 
                contract shall not fail to be treated as described in 
                paragraph (1)(A) by reason of payments being made on a 
                per diem or other periodic basis without regard to the 
                expenses incurred during the period to which the 
                payments relate.
                    ``(B) Contract may cover medicare reimbursable 
                expenses where medicare is secondary payor.--Paragraph 
                (1)(B) shall not apply to expenses which are 
                reimbursable under title XVIII of the Social Security 
                Act only as a secondary payor.
                    ``(C) Refunds of premiums.--Paragraph (1)(E) shall 
                not apply to any refund of premiums on surrender or 
                cancellation of the contract.
    ``(b) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        and rehabilitative services, and maintenance or personal care 
        services, which--
                    ``(A) are required by a chronically ill individual 
                in a qualified facility, and
                    ``(B) are provided pursuant to a plan of care 
                prescribed by a licensed health care practitioner.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically ill 
                individual' means any individual who has been certified 
                by a licensed health care practitioner as--
                            ``(i)(I) being unable to perform (without 
                        substantial assistance from another individual) 
                        at least 2 activities of daily living (as 
                        defined in subparagraph (B)) for a period of at 
                        least 90 days due to a loss of functional 
                        capacity, or
                            ``(II) having a level of disability similar 
                        (as determined by the Secretary in consultation 
                        with the Secretary of Health and Human 
                        Services) to the level of disability described 
                        in subclause (I), or
                            ``(ii) having a similar level of disability 
                        due to cognitive impairment.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                            ``(i) Mobility.--The process of walking or 
                        wheeling on a level surface which may include 
                        the use of an assistive device such as a cane, 
                        walker, wheelchair, or brace.
                            ``(ii) Dressing.--The overall complex 
                        behavior of getting clothes from closets and 
                        drawers and then getting dressed.
                            ``(iii) Toileting and bathing.--Each of the 
                        following shall be treated as 1 activity:
                                    ``(I) The act of going to the 
                                toilet room for bowel and bladder 
                                function, transferring on and off the 
                                toilet, cleaning after elimination, and 
                                arranging clothes or the ability to 
                                voluntarily control bowel and bladder 
                                function, or in the event of 
                                incontinence, the ability to maintain a 
                                reasonable level of personal hygiene.
                                    ``(II) The overall complex behavior 
                                of getting water and cleansing the 
                                whole body, including turning on the 
                                water for a bath, shower, or sponge 
                                bath, getting to, in, and out of a tub 
                                or shower, and washing and drying 
                                oneself.
                            ``(iv) Transfer.--The process of getting in 
                        and out of bed or in and out of a chair or 
                        wheelchair.
                            ``(v) Eating.--The process of getting food 
                        from a plate or its equivalent into the mouth.
            ``(3) Qualified facility.--The term `qualified facility' 
        means--
                    ``(A) a nursing, rehabilitative, hospice, or adult 
                day care facility (including a hospital, retirement 
                home, nursing home, skilled nursing facility, 
                intermediate care facility, or similar institution)--
                            ``(i) which is licensed under State law, or
                            ``(ii) which is a certified facility for 
                        purposes of title XVIII or XIX of the Social 
                        Security Act, or
                    ``(B) an individual's home if a licensed health 
                care practitioner certifies that without home care the 
                individual would have to be cared for in a facility 
                described in subparagraph (A).
            ``(4) Maintenance or personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is to provide needed assistance with 
        any of the activities of daily living described in paragraph 
        (2)(B).
            ``(5) Licensed health care practitioner.--The term 
        `licensed health care practitioner' means any physician (as 
        defined in section 1861(r) of the Social Security Act) and any 
        registered professional nurse, licensed social worker, or other 
        individual who meets such requirements as may be prescribed by 
        the Secretary.
    ``(c) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations prescribed by 
the Secretary, in the case of any long-term care insurance coverage 
(whether or not qualified) provided by rider on a life insurance 
contract, this section shall be applied as if the portion of the 
contract providing such coverage were a separate contract.''
    (e) Conforming Amendments.--
            (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
        at the end of subclause (III), by striking ``and'' at the end 
        of subclause (IV) and inserting ``or'', and by inserting after 
        subclause (IV) the following new subclause:
                                    ``(V) the date on which qualified 
                                first-time homebuyer distributions (as 
                                defined in section 72(t)(6)), 
                                distributions for qualified higher 
                                education expenses (as defined in 
                                section 72(t)(7)), or distributions for 
                                coverage of the taxpayer or the 
                                taxpayer's spouse under any long-term 
                                care insurance contract (as defined in 
                                section 7705) are made, and''.
            (2) Section 403(b)(11) is amended by striking ``or'' at the 
        end of subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) for qualified first-time homebuyer 
                distributions (as defined in section 72(t)(6)), for the 
                payment of qualified higher education expenses (as 
                defined in section 72(t)(7)), or distributions for 
                coverage of the taxpayer or the taxpayer's spouse under 
                any long-term care insurance contract (as defined in 
                section 7705).''.
            (3) The table of sections for chapter 79 is amended by 
        adding at the end the following new item:

                              ``Sec. 7705. Long-term care insurance 
                                        contract.''
    (f) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after the date of the enactment of 
this Act.

           TITLE III--AID TO FAMILIES WITH DEPENDENT CHILDREN

SEC. 301. DISREGARD OF INCOME AND RESOURCES DESIGNATED FOR EDUCATION, 
              TRAINING, AND EMPLOYABILITY.

    (a) Disregard as Resource.--Section 402(a)(7)(B) of the Social 
Security Act (42 U.S.C. 602(a)(7)(B)) is amended--
            (1) by striking ``or'' before ``(iv)'', and
            (2) by inserting ``, or (v) at the option of the State, in 
        the case of a family receiving aid under the State plan (and a 
        family not receiving such aid but which received such aid in at 
        least 1 of the preceding 4 months or became ineligible for such 
        aid during the preceding 12 months because of excessive 
        earnings), any amount not to exceed $8,000 in a qualified asset 
        account (as defined in section 406(i)) of such family'' before 
        ``; and''.
    (b) Disregard as Income.--
            (1) In general.--Section 402(a)(8)(A) of such Act (42 
        U.S.C. 602(a)(8)(A)) is amended--
                    (A) by striking ``and'' at the end of clause (vii), 
                and
                    (B) by inserting after clause (viii) the following 
                new clause:
                            ``(ix) shall disregard any interest or 
                        income earned on a qualified asset account (as 
                        defined in section 406(i)); and''.
            (2) Nonrecurring lump sum exempt from lump sum rule.--
        Section 402(a)(17) of such Act (42 U.S.C. 602(a)(17)) is 
        amended by adding at the end the following: ``; and that this 
        paragraph shall not apply to earned or unearned income received 
        in a month on a nonrecurring basis to the extent that such 
        income is placed in a qualified asset account (as defined in 
        section 406(i)) the total amount in which, after such 
        placement, does not exceed $8,000;''.
            (3) Treatment as income.--Section 402(a)(7) of such Act (42 
        U.S.C. 602(a)(7)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (B),
                    (B) by striking the semicolon at the end of 
                subparagraph (C) and inserting ``; and'', and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(D) shall treat as income any distributions from 
                a qualified asset account (as defined in section 
                406(i)(1)) which do not meet the definition of a 
                qualified distribution under section 406(i)(2);''.
    (c) Qualified Asset Accounts.--Section 406 of such Act (42 U.S.C. 
606) is amended by adding at the end the following:
    ``(i)(1) The term `qualified asset account' means a mechanism 
approved by the State (such as individual retirement accounts, escrow 
accounts, or savings bonds) that allows savings of a family receiving 
aid to families with dependent children to be used for qualified 
distributions.
    ``(2) The term `qualified distributions' means distributions for 
expenses directly related to one or more of the following purposes:
            ``(A) The attendance of a member of the family at any 
        education or training program.
            ``(B) The improvement of the employability (including self-
        employment) of a member of the family (such as through the 
        purchase of an automobile).
            ``(C) The purchase of a home for the family.
            ``(D) A change of the family residence.''.
    (d) Study of Use of Qualified Asset Accounts; Report.--The 
Secretary of Health and Human Services shall conduct a study of the use 
of qualified asset accounts established pursuant to the amendments made 
by this section, and shall report on such study and any recommendations 
for modifications of such amendments to the Committee on Finance of the 
Senate and the Committee on Ways and Means of the House of 
Representatives not later than January 1, 1998.
    (e) Report on AFDC Asset Limit on Automobiles.--Within 3 months 
after the date of the enactment of this section, the Secretary of 
Health and Human Services shall submit to the Congress a report on--
            (1) the need to revise the limitation, established in 
        regulations pursuant to section 402(a)(7)(B)(i) of the Social 
        Security Act, on the value of a family automobile required to 
        be disregarded by a State in determining the eligibility of the 
        family for aid to families with dependent children under the 
        State plan approved under part A of title IV of such Act, and
            (2) the extent to which such a revision would increase the 
        employability of recipients of such aid.
    (f)  Effective Date.--The amendments made by this section shall 
take effect on October 1, 1995, with respect to accounts approved on or 
after such date and before October 1, 1998.
                                 <all>
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