[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1310 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                S. 1310

 To amend the Internal Revenue Code of 1986 to expand the availability 
       of individual retirement accounts, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             October 11 (legislative day, October 10), 1995

   Mr. Kerry introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to expand the availability 
       of 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--IRA Deduction

SEC. 101. INCREASE IN INCOME LIMITATIONS.

    (a) In General.--Subparagraph (B) of section 219(g)(3) is amended--
            (1) by striking ``$40,000'' in clause (i) and inserting 
        ``$80,000'', and
            (2) by striking ``$25,000'' in clause (ii) and inserting 
        ``$50,000''.
    (b) Phase-Out of Limitations.--Clause (ii) of section 219(g)(2)(A) 
is amended by striking ``$10,000'' and inserting ``an amount equal to 
10 times the dollar amount applicable for the taxable year under 
subsection (b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 102. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT AND INCOME 
              LIMITATIONS.

    (a) In General.--Section 219 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) In general.--In the case of any taxable year 
        beginning in a calendar year after 1996, each dollar amount to 
        which this subsection applies shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 1995' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Dollar amounts to which subsection applies.--This 
        subsection shall apply to--
                    ``(A) the $2,000 amounts under subsection (b)(1)(A) 
                and (c), and
                    ``(B) the applicable dollar amounts under 
                subsection (g)(3)(B).
            ``(3) Rounding rules.--
                    ``(A) Deduction amounts.--If any amount referred to 
                in paragraph (2)(A) as adjusted under paragraph (1) is 
                not a multiple of $500, such amount shall be rounded to 
                the next lowest multiple of $500.
                    ``(B) Applicable dollar amounts.--If any amount 
                referred to in paragraph (2)(B) as adjusted under 
                paragraph (1) is not a multiple of $5,000, such amount 
                shall be rounded to the next lowest multiple of 
                $5,000.''
    (b) Conforming Amendments.--
            (1) Clause (i) of section 219(c)(2)(A) is amended to read 
        as follows:
                            ``(i) the sum of $250 and the dollar amount 
                        in effect for the taxable year under subsection 
                        (b)(1)(A), or''.
            (2) 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)''.
            (3) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
        and inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (4) Subparagraph (A) of section 408(d)(5) is amended by 
        striking ``$2,250'' and inserting ``the dollar amount in effect 
        for the taxable year under section 219(c)(2)(A)(i)''.
            (5) Section 408(j) is amended by striking ``$2,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 103. 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)(2) with 
        respect to any individual for any taxable year shall not exceed 
        the excess (if any) of--
                    ``(A) the limitation applicable for the taxable 
                year under section 402(g)(1), over
                    ``(B) the elective deferrals (as defined in section 
                402(g)(3)) of such individual for such taxable year.''
    (b) Conforming Amendment.--Section 219(c) is amended by adding at 
the end the following new paragraph:
    ``(3) Cross Reference.--

                                ``For reduction in paragraph (2) 
amount, see subsection (b)(4).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

                Subtitle B--Nondeductible Tax-Free IRA's

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. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.

    ``(a) General Rule.--Except as provided in this chapter, a special 
individual retirement account shall be treated for purposes of this 
title in the same manner as an individual retirement plan.
    ``(b) Special Individual Retirement Account.--For purposes of this 
title, the term `special individual retirement account' means an 
individual retirement plan which is designated at the time of 
establishment of the plan as a special individual retirement account.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be allowed 
        under section 219 for a contribution to a special individual 
        retirement account.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all special individual 
        retirement 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, over
                    ``(B) the amount so allowed.
            ``(3) Special rules for qualified transfers.--
                    ``(A) In general.--No rollover contribution may be 
                made to a special individual retirement account unless 
                it is a qualified transfer.
                    ``(B) Limit not to apply.--The limitation under 
                paragraph (2) shall not apply to a qualified transfer 
                to a special individual retirement account.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Except as provided in this subsection, 
        any amount paid or distributed out of a special individual 
        retirement 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 a 
                special individual retirement 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) Ordering rule.--
                            ``(i) First-in, first-out rule.--
                        Distributions from a special individual 
                        retirement 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.
                    ``(C) Cross reference.--

                                ``For additional tax for early 
withdrawal, see section 72(t).
            ``(3) Qualified transfer.--
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any distribution which is transferred in a qualified 
                transfer to another special individual retirement 
                account.
                    ``(B) Contribution period.--For purposes of 
                paragraph (2), the special individual retirement 
                account to which any contributions are transferred 
                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 special 
                individual retirement 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 a special individual retirement account from an 
                individual retirement plan which is not a special 
                individual retirement 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.--
            ``(1) In general.--The term `qualified transfer' means a 
        transfer to a special individual retirement account from 
        another such account or from an individual retirement plan but 
        only if such transfer meets the requirements of section 
        408(d)(3).
            ``(2) Limitation.--A transfer otherwise described in 
        paragraph (1) shall not be treated as a qualified transfer if 
        the taxpayer's adjusted gross income for the taxable year of 
        the transfer exceeds the sum of--
                    ``(A) the applicable dollar amount, plus
                    ``(B) the dollar amount applicable for the taxable 
                year under section 219(g)(2)(A)(ii).
        This paragraph shall not apply to a transfer from a special 
        individual retirement account to another special individual 
        retirement account.
            ``(3) Definitions.--For purposes of this subsection, the 
        terms `adjusted gross income' and `applicable dollar amount' 
        have the meanings given such terms by section 219(g)(3), except 
        subparagraph (A)(ii) thereof shall be applied without regard to 
        the phrase `or the deduction allowable under this section'.''
    (b) Early Withdrawal Penalty.--Section 72(t) is amended by adding 
at the end the following new paragraph:
            ``(6) Rules relating to special individual retirement 
        accounts.--In the case of a special individual retirement 
        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. Special individual 
                                        retirement accounts.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

                  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 BY THE 
              UNEMPLOYED.

    (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 or educational expenses.--Distributions 
                to an individual from an individual retirement plan--
                            ``(i) which are qualified first-time 
                        homebuyer distributions (as defined in 
                        paragraph (7)); or
                            ``(ii) to the extent such distributions do 
                        not exceed the qualified higher education 
                        expenses (as defined in paragraph (8)) of the 
                        taxpayer for the taxable year.''
    (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 and long-term care services treated as medical 
        care.--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) in the case of an individual 
                        retirement plan--
                                    ``(I) by treating such employee's 
                                dependents as including all children, 
                                grandchildren and ancestors of the 
                                employee or such employee's spouse and
                                    ``(II) by treating qualified long-
                                term care services (as defined in 
                                paragraph (9)) as medical care for 
                                purposes of this subparagraph (B).''
            (3) Conforming amendment.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``or (C)'' and inserting ``, 
        (C) or (D)''.
    (c) Definitions.--Section 72(t), as amended by this Act, is amended 
by adding at the end the following new paragraphs:
            ``(7) 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 or the spouse, child (as defined in section 
                151(c)(3)), or grandchild of such individual.
                    ``(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 3-year 
                                period ending on the date of 
                                acquisition of the principal residence 
                                to which this paragraph applies, and
                                    ``(II) subsection (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).
                        In the case of an individual described in 
                        section 143(i)(1)(C) for any year, an ownership 
                        interest shall not include any interest under a 
                        contract of deed described in such section. An 
                        individual who loses an ownership interest in a 
                        principal residence incident to a divorce or 
                        legal separation is deemed for purposes of this 
                        subparagraph to have had no ownership interest 
                        in such principal residence within the period 
                        referred to in 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.
            ``(8) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)(ii)--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse,
                            ``(iii) a dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151, or
                            ``(iv) the taxpayer's child (as defined in 
                        section 151(c)(3)) or grandchild,
                as an eligible student at an institution of higher 
                education (as defined in paragraphs (1)(D) and (2) of 
                section 220(c)).
                    ``(B) Exceptions.--The term `qualified higher 
                education expenses' does not include expenses described 
                in subparagraphs (B) and (C) of section 220(c)(1).
                    ``(C) 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.
            ``(9) Qualified long-term care services.--For purposes of 
        paragraph (2)(B):
                    ``(A) In general.--The term `qualified long-term 
                care services' means necessary diagnostic, curing, 
                mitigating, treating, preventive, therapeutic, and 
                rehabilitative services, and maintenance and personal 
                care services (whether performed in a residential or 
                nonresidential setting) which--
                            ``(i) are required by an individual during 
                        any period the individual is an incapacitated 
                        individual (as defined in subparagraph (B)),
                            ``(ii) have as their primary purpose--
                                    ``(I) the provision of needed 
                                assistance with 1 or more activities of 
                                daily living (as defined in 
                                subparagraph (C)), or
                                    ``(II) protection from threats to 
                                health and safety due to severe 
                                cognitive impairment, and
                            ``(iii) are provided pursuant to a 
                        continuing plan of care prescribed by a 
                        licensed professional (as defined in 
                        subparagraph (D)).
                    ``(B) Incapacitated individual.--The term 
                `incapacitated individual' means any individual who--
                            ``(i) is unable to perform, without 
                        substantial assistance from another individual 
                        (including assistance involving cueing or 
                        substantial supervision), at least 2 activities 
                        of daily living as defined in subparagraph (C), 
                        or
                            ``(ii) has severe cognitive impairment as 
                        defined by the Secretary in consultation with 
                        the Secretary of Health and Human Services.
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless a licensed professional within the preceding 12-
                month period has certified that such individual meets 
                such requirements.
                    ``(C) Activities of daily living.--Each of the 
                following is an activity of daily living:
                            ``(i) Eating.
                            ``(ii) Toileting.
                            ``(iii) Transferring.
                            ``(iv) Bathing.
                            ``(v) Dressing.
                    ``(D) Licensed professional.--The term `licensed 
                professional' means--
                            ``(i) a physician or registered 
                        professional nurse, or
                            ``(ii) any other individual who meets such 
                        requirements as may be prescribed by the 
Secretary after consultation with the Secretary of Health and Human 
Services.
                    ``(E) Certain services not included.--The term 
                `qualified long-term care services' shall not include 
                any services provided to an individual--
                            ``(i) by a relative (directly or through a 
                        partnership, corporation, or other entity) 
                        unless the relative is a licensed professional 
                        with respect to such services, or
                            ``(ii) by a corporation or partnership 
                        which is related (within the meaning of section 
                        267(b) or 707(b)) to the individual.
                For purposes of this subparagraph, the term `relative' 
                means an individual bearing a relationship to the 
                individual which is described in paragraphs (1) through 
                (8) of section 152(a).''
    (d) 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.''
    (e) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after December 31, 1995.

SEC. 202. CONTRIBUTIONS MUST BE HELD AT LEAST 5 YEARS IN CERTAIN CASES.

    (a) In General.--Section 72(t), as amended by this Act, is amended 
by adding at the end the following new paragraph:
            ``(10) Certain contributions must be held 5 years.--
                    ``(A) In general.--Paragraph (2)(A)(i) shall not 
                apply to any amount distributed out of an individual 
                retirement plan (other than a special individual 
                retirement account) which is allocable to contributions 
                made to the plan during the 5-year period ending on the 
                date of such distribution (and earnings on such 
                contributions).
                    ``(B) Ordering rule.--For purposes of this 
                paragraph, distributions 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.
                Earnings shall be allocated to contributions in such 
                manner as the Secretary may prescribe.
                    ``(C) Special rule for rollovers.--
                            ``(i) Pension plans.--Subparagraph (A) 
                        shall not apply to distributions out of an 
                        individual retirement plan which are allocable 
                        to rollover contributions to which section 
                        402(c), 403(a)(4), or 403(b)(8) applied.
                            ``(ii) Contribution period.--For purposes 
                        of subparagraph (A), amounts shall be treated 
                        as having been held by a plan during any period 
                        such contributions were held (or are treated as 
                        held under this clause) by any individual 
                        retirement plan from which transferred.
                    ``(D) Special accounts.--For rules applicable to 
                special individual retirement accounts under section 
                408A, see paragraph (8).''
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions (and earnings allocable thereto) which are made after 
December 31, 1995.
                                 <all>
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