[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 228 Introduced in House (IH)]
105th CONGRESS
1st Session
H. R. 228
To amend the Internal Revenue Code of 1986 to allow penalty-free
withdrawals from IRAs for certain purposes, to increase the amount of
tax deductible IRA contributions, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 7, 1997
Mr. McCollum 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 allow penalty-free
withdrawals from IRAs for certain purposes, to increase the amount of
tax deductible IRA contributions, 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. PENALTY-FREE DISTRIBUTIONS FROM IRAS AND EXCLUSION FROM
INCOME OF CERTAIN IRA DISTRIBUTIONS WHICH ARE REPAID.
(a) Penalty-Free Distributions.--
(1) In general.--Paragraph (2) of section 72(t) of the
Internal Revenue Code of 1986 (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:
``(E) Distributions from certain plans for first
home purchases, higher education expenses, and
qualified long term care expenses.--Distributions to an
individual from an individual retirement plan--
``(i) which are qualified first-time
homebuyer distributions,
``(ii) to the extent such distributions do
not exceed the qualified higher education
expenses of the taxpayer for the taxable year,
or
``(iii) to the extent such distributions do
not exceed the expenses paid by the taxpayer
during the taxable year for qualified long-term
care services (as defined in section
7702B(c)).''
(2) Definitions.--Section 72(t) of such Code is amended by
adding at the end the following new paragraphs:
``(7) Qualified first-time homebuyer distributions.--
``(A) In general.--For purposes of paragraph
(2)(E)(i), 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 for such
individual as a first-time homebuyer.
``(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
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.
``(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 a binding contract
to construct or reconstruct such a
principal residence is entered into.
``(D) Special rule where delay in acquisition.--If
any payment or distribution fails to meet the
requirements of subparagraph (A) solely by reason of a
delay or cancellation of the purchase, construction, or
reconstruction of the residence, the amount of the
payment or distribution may be contributed to an
individual retirement account as provided in subsection
(d)(3)(A)(i) of section 408 (determined by substituting
`120th day' for `60th day' in such subsection), except
that--
``(i) subsection (d)(3)(B) of such section
shall not be applied to such contribution, and
``(ii) such amount shall not be taken into
account in applying subsection (d)(3)(B) to any
other amount.
``(8) Qualified higher education expenses.--For purposes of
paragraph (2)(E)(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) the taxpayer's dependent (as
defined in section 152),
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.''
(3) Expanded penalty-free withdrawals for unemployed.--
(A) In general.--Clause (i) of section 72(t)(2)(D)
of such Code is amended by inserting ``and'' at the end
of subclause (I), by striking ``, and'' at the end of
subclause (II) and inserting a period, and by striking
subclause (III).
(B) Conforming amendment.--The heading for
subparagraph (D) of section 72(t)(2) of such Code is
amended by striking ``for health insurance premiums''.
(4) Conforming amendment.--Subparagraph (B) of section
72(t)(2) of such Code is amended by striking ``or (D)'' and
inserting ``, (D), or (E)''.
(b) IRA Distributions To Pay Financially Devastating Medical
Expenses of Certain Lineal Descendants and Ancestors.--Subparagraph (B)
of section 72(t)(2) of such Code 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, 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.''
(c) Exclusion From Income of Certain Distributions Which Are
Repaid.--Section 408 of the Internal Revenue Code of 1986 (relating to
individual retirement accounts) is amended by redesignating subsection
(q) as subsection (r) and by inserting after subsection (p) the
following new subsection:
``(q) Repayable Distributions From Individual Retirement Accounts
for First Home Purchases, Higher Education Expenses, Qualified Long
Term Care Expenses, Qualified Unemployment Distributions, and
Financially Devastating Medical Expenses.--
``(1) In general.--Notwithstanding any other provision of
this section, gross income shall not include any qualified
distribution.
``(2) Repayment requirement.--
``(A) Addition to tax.--If the required
recontributions made by the taxpayer during the
repayment period are less than the qualified
distribution, the tax imposed by this chapter for the
last taxable year in the repayment period shall be
increased by the amount determined under subparagraph
(B).
``(B) Determination of amount.--The amount
determined under this subparagraph shall be an amount
which bears the same ratio to the tax benefit amount
as--
``(i) the excess (if any) of the qualified
distribution over required recontributions made
during the repayment period, bears to
``(ii) the qualified distribution.
``(C) Repayment period.--For purposes of this
subsection, the term `repayment period' means, with
respect to any qualified distribution, the 5-taxable
year period beginning after the taxable year in which
such distribution is received.
``(D) Tax benefit amount.--For purposes of this
subsection, the term `tax benefit amount' means, with
respect to any qualified distribution, the sum of--
``(i) the aggregate reduction in the tax
imposed by this chapter for the taxable year in
which such distribution is received by reason
of the exclusion under paragraph (1), and
``(ii) interest on the amount of such
reduction for the repayment period computed at
the Federal mid-term rate (within the meaning
of section 1274(d)(1)) and compounded annually.
``(3) Qualified distribution.--For purposes of this
subsection, the term `qualified distribution' means any
distribution described in subparagraph (B), (D) or (E) of
section 72(d)(2) to an individual from an individual retirement
plan maintained for the benefit of such individual.
``(4) Recontribution of qualified distributions.--
``(A) In general.--If an individual received a
qualified distribution, such individual shall make
required recontributions in the manner provided in this
paragraph to an individual retirement plan maintained
for the benefit of such individual.
``(B) Method of making recontribution.--Any
required recontribution--
``(i) shall be made during the repayment
period for the qualified distribution,
``(ii) shall not exceed the qualified
distribution reduced by any prior
recontribution under this paragraph with
respect to such distribution, and
``(iii) shall be made by making a payment
in cash to an individual retirement plan for
the benefit of such individual.
An individual making a required recontribution under
this paragraph shall designate (in the manner
prescribed by the Secretary) such contribution as a
required recontribution under this paragraph and shall
specify the qualified distribution with respect to
which such recontribution is being made.
``(C) Treatment as rollover contribution.--For
purposes of this title, any required recontribution
under this paragraph shall be treated as a rollover
contribution described in subsection (d)(3).
``(7) Other special rules.--
``(A) Basis rules not affected.--The tax treatment
under this chapter of any distribution (other than a
qualified distribution) shall be determined as if this
subsection had not been enacted.
``(B) Aggregation rule.--For purposes of this
subsection, all qualified distributions received by an
individual during a taxable year shall be treated as a
single distribution.''
(d) Effective Date.--The amendments made by this section shall
apply to distributions received in taxable years beginning after
December 31, 1997.
SEC. 2. INCREASE IN AMOUNT OF DEDUCTIBLE IRA CONTRIBUTIONS AND INDEXING
FOR INFLATION.
(a) Increase in Maximum Amount of Deduction.--Subparagraph (A) of
section 219(b)(1) of the Internal Revenue Code of 1986 (relating to
maximum amount of deduction) is amended by striking ``$2,000'' and
inserting ``$4,500''.
(b) Inflation Adjustments.--Subsection (f) of section 219 of such
Code is amended by adding at the end the following new paragraph:
``(8) Inflation adjustments.--In the case of a taxable year
beginning in a calendar year after 1998, each dollar amount set
forth in subsections (b)(1)(A) and (g)(3)(B) 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 such calendar year by
substituting `calendar year 1997' for `calendar year
1992' in subparagraph (B) thereof.
If any increase determined under the preceding sentence is not
a multiple of $100, such increase shall be rounded to the
nearest multiple of $100.''
(c) Conforming Amendments.--
(1) Subsections (a)(1) and (b)(2)(B) of section 408 of such
Code are each amended by striking ``$2,000'' and inserting
``the dollar limitation in effect under section 219(b)(1)(A)''.
(2) Subsection (j) of section 408 of such Code is amended
by striking ``the $2,000 amounts contained'' and inserting
``the dollar limitations referred to''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
SEC. 3. ELIMINATION OF PHASE-OUT FOR INDIVIDUALS NOT ACTIVE
PARTICIPANTS IN DEFINED CONTRIBUTION PLANS AND INCREASE
OF INCOME LIMITS FOR OTHERS.
(a) Elimination of Phase-Out for Individuals Not Active
Participants in Defined Contribution Plan.--Paragraph (5) of section
219(g) of the Internal Revenue Code of 1986 (relating to active
participant) is amended by striking the period at the end of
subparagraph (B) and inserting a comma, and by inserting after
subparagraph (B) the following:
``if such plan, contract, pension, or trust is a defined
contribution plan (as defined in section 414(i)).''
(b) Increase in Income Phaseout Levels.--
(1) In general.--Subparagraph (B) of section 219(g)(3) of
such Code (relating to applicable dollar amount) is amended--
(A) by striking ``$40,000'' and inserting
``$120,000'', and
(B) by striking ``$25,000'' and inserting
``$75,000''.
(2) Cross reference to inflation adjustment.--Paragraph (3)
of section 219(g) of such Code is amended by adding at the end
the following new subparagraph:
``(C) Cross Reference.--
``For inflation adjustment of dollar
amounts set forth in subparagraph (B), see subsection (f)(8).''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.
SEC. 4. WITHHOLDING, CONTRIBUTION LIMITS, AND MATCHING CONTRIBUTION
NONDISCRIMINATION REQUIREMENTS FOR 401(k) PLANS.
(a) Inapplicability of Withholding Requirement to 401(k)
Distributions.--
(1) In general.--Paragraph (3) of section 3405(c) of the
Internal Revenue Code of 1986 (relating to eligible rollover
distribution) is amended by striking the period at the end and
inserting the following: ``, except that such term shall not
include a distribution from a qualified cash or deferred
arrangement (as defined in section 401(k)).''
(2) Effective date.--The amendment made by this subsection
shall apply to distributions made after December 31, 1997.
(b) Increase in Contribution Limits for 401(k) Plans.--
(1) In general.--Paragraph (1) of section 402(g) of such
Code (relating to limitation on exclusion for elective
deferrals) is amended by striking ``$7,000'' and inserting
``$20,000''.
(2) Conforming amendment.--Paragraph (5) of section 402(g)
of such Code (relating to cost-of-living adjustment) is amended
by striking ``$7,000'' and inserting ``$20,000'' and by
inserting before the period ``and the base period taken into
account shall be the calendar quarter beginning October 1,
1997''.
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 1997.
(c) Alternative Methods for Meeting Section 401(k)
Nondiscrimination Test and Nondiscrimination Test for Matching
Contributions.--
(1) Section 401(k) nondiscrimination test.--Subsection (k)
of section 401 of such Code (relating to cash or deferred
arrangements) is amended by adding at the end the following new
paragraph:
``(13) Additional alternative method of meeting
nondiscrimination requirements.--
``(A) In general.--A cash or deferred arrangement
shall be treated as meeting the requirements of
paragraph (3)(A)(ii) if--
``(i) under the arrangement, the employer
makes matching contributions on behalf of each
employee in an amount equal to a percentage of
the contributions and elective deferrals of
such employee,
``(ii) the same such percentage applies to
all employees of the employer, and
``(iii) not less than biannually, each
employee eligible to participate under the
arrangement is given written notice of the
employee's rights and obligations under the
arrangement which meets the requirements of
clauses (i) and (ii) of paragraph (12)(D).
``(B) Special rules regarding increase and decrease
in matching contributions.--
``(i) Increase in rate of matching
contributions.--An arrangement shall not be
treated as meeting the requirement of
subparagraph (A)(ii) if the rate of the
employer's matching contributions increases as
the rate of an employee's contributions or
elective deferrals increases.
``(ii) Permissible decrease as elective
deferrals and contributions increase.--An
arrangement shall not fail to be treated as
meeting the requirement of subparagraph (A)(ii)
by reason of a decrease in the rate of the
employer's matching contributions as the rate
of the employee's contributions or elective
deferrals increases, if the same such rate of
decrease applies to all employees of the
employer.''
(2) Nondiscrimination test for matching contributions.--
Subsection (m) of section 401 of such Code is amended by
redesignating paragraph (12) as paragraph (13) and by inserting
after paragraph (11) the following new paragraph:
``(12) Additional alternative method for cash or deferred
arrangements.--A qualified cash or deferred arrangement (as
defined in subsection (k)) shall be treated as meeting the
requirements of paragraph (2) with respect to matching
contributions if the arrangement meets the requirements of
subsection (k)(13).''
(3) Effective date.--The amendments made by this section
shall apply to years beginning after December 31, 1997.
SEC. 5. INHERITED IRAS AND INHERITED 401(k) AMOUNTS.
(a) Exclusion of Inherited IRAs and Certain Inherited 401(k)
Amounts From Gross Estate.--
(1) In general.--Section 2039 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
subsection:
``(c) Exclusion of Individual Retirement Accounts and Certain
Inherited 401(k) Amounts.--Notwithstanding any other provision of this
section or of any other provision of law, there shall be excluded from
the value of the gross estate any amount receivable by any beneficiary
(other than the executor) under--
``(1) an individual retirement plan of the decedent, or
``(2) a qualified cash or deferred arrangement (as defined
in section 401(k)) of the decedent, if the requirements of
section 408(o)(2)(B)(iii) are met with respect to such
amount.''
(2) Effective date.--The amendment made by paragraph (1)
shall apply to estates of decedents dying after December 31,
1997.
(b) Beneficiary Permitted To Hold IRA Received from Decedent.--
(1) In general.--Subparagraph (B) of section 401(a)(9) of
such Code (relating to required distributions) is amended by
adding at the end the following new clause:
``(v) Exception for designated beneficiary
of individual retirement plan.--Notwithstanding
clauses (iii) and (iv), if any portion of the
interest in an individual retirement plan is
payable to (or for the benefit of) a designated
beneficiary by reason of the death of another
individual, the date on which distributions
from such plan are required to begin under this
paragraph shall be determined by applying this
paragraph as if such beneficiary were the
employee.''
(2) Conforming amendment.--Paragraph (3) of section 408(d)
of such Code is amended by striking subparagraph (C) (relating
to denial of rollover treatment for inherited accounts, etc.).
(3) Effective date.--The amendments made by this subsection
shall apply to amounts payable after, and acquisitions after,
December 31, 1997.
(c) Contribution of Inherited 401(k) Amounts to IRA; Exclusion From
Gross Income for Such Amounts.--
(1) In general.--Subparagraph (B) of section 408(o)(2) of
such Code (relating to nondeductible limit) is amended by
adding at the end the following new clause:
``(iii) Inherited 401(k) amounts.--If, by
reason of the death of an employee, an
individual receives an amount attributable to
an elective deferral described in section
402(g)(3)(A) of such employee--
``(I) such individual's
nondeductible limit for the taxable
year in which such amount is received
shall be increased by the portion of
such amount which is paid (not later
than the 60th day after the date of
such receipt) into an individual
retirement plan for the benefit of such
individual, and
``(II) such portion shall not be
includible in the gross income of such
individual.''
(2) Conforming amendment.--Paragraph (1) of section 4973(b)
of such Code (relating to excess contributions) is amended by
striking ``408(d)(3))'' and inserting ``408(d)(3)) and other
than amounts excluded from gross income under section
408(o)(2)(B)(iii)''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts received after December 31, 1997.
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