[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 197 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 197

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 22, 1997

Mr. Roth (for himself, Mr. Lott, Mr. Breaux, Mr. Grassley, Mr. Nickles, 
Mr. Murkowski, Mr. Abraham, Mr. Kyl, Mr. Helms, Mr. D'Amato, Mr. Craig, 
  Mrs. Hutchison, Mr. McConnell, Mr. Thomas, Mr. Smith of Oregon, Mr. 
DeWine, Mr. Inhofe, Mr. Bryan, Mr. Roberts, Ms. Mikulski, Mr. Smith of 
New Hampshire, Mr. Hatch, Mr. Bennett, Mr. Kempthorne, Mr. Inouye, Mr. 
  Enzi, Mr. Ford, Mr. Burns, Mr. Lieberman, Mr. Hagel, Mr. Gramm, Mr. 
   Dodd, Ms. Collins, Mr. Gregg, Mr. Grams, Mr. Bond, and Mr. Kohl) 
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 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 1997''.
    (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) Modifications of Restrictions on Active Participants.--
            (1) Increase in income limits applicable to active 
        participants.--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:
    1997..........................................             $65,000 
    1998..........................................             $90,000 
    1999..........................................            $115,000 
    2000..........................................            $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:
    1997..........................................             $50,000 
    1998..........................................             $75,000 
    1999..........................................            $100,000 
    2000..........................................            $125,000.
                            ``(iii) In the case of a married individual 
                        filing a separate return, zero.''.
            (2) Limitations for active participation not based on 
        spouse's participation.--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) Repeal of Restrictions on Active Participants.--
            (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, 2000.''.
                    (D) Sections 408A(c)(2)(A) and 4973(b)(2)(B)(ii), 
                as added by section 111, are each amended by striking 
                ``(computed without regard to subsection (g) of such 
                section)''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsection (a) 
        shall apply to taxable years beginning after December 31, 1996.
            (2) Termination.--The amendments made by subsection (b) 
        shall apply to taxable years beginning after December 31, 2000.

SEC. 102. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.

    (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.--In the case of any taxable year 
beginning in a calendar year after 1997, 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 determined under 
section 1(f)(3) for the calendar year in which the taxable year begins, 
except that subparagraph (B) thereof shall be applied by substituting 
`1996' for `1992'. If the amount to which $2,000 would be increased 
under the preceding sentence is not a multiple of $500, such amount 
shall be rounded to the next lower multiple of $500.''
    (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. CERTAIN COINS AND BULLION NOT TREATED AS COLLECTIBLES.

    (a) In General.--Paragraph (3) of section 408(m) (relating to 
exception for certain coins) 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, 1996.

                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 (as defined in 
section 7701(a)(37)) which is designated (in such manner as the 
Secretary may prescribe) 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 
                subsection (g) of such section), over
                    ``(B) the amount so allowed.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to an IRA Plus account may be made even after the 
        individual for whom the account is maintained has attained age 
        70\1/2\.
            ``(4) Mandatory distribution rules not to apply, etc.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), subsections (a)(6) and (b)(3) of 
                section 408 (relating to required distributions) and 
                section 4974 (relating to excise tax on certain 
                accumulations in qualified retirement plans) shall not 
                apply to any IRA Plus account.
                    ``(B) Post-death distributions.--Rules similar to 
                the rules of section 401(a)(9) (other than subparagraph 
                (A) thereof) shall apply for purposes of this section.
            ``(5) Rollover contributions.--
                    ``(A) In general.--No rollover contribution may be 
                made to an IRA Plus account unless it is a qualified 
                rollover contribution.
                    ``(B) Coordination with limit.--A qualified 
                rollover contribution shall not be taken into account 
                for purposes of paragraph (2).
            ``(6) Time when contributions made.--For purposes of this 
        section, the rule of section 219(f)(3) shall apply.
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) General rules.--
                    ``(A) Exclusions from gross income.--Any qualified 
                distribution from an IRA Plus account shall not be 
                includible in gross income.
                    ``(B) Nonqualified distributions.--In applying 
                section 72 to any distribution from an IRA Plus account 
                which is not a qualified distribution, such 
                distribution shall be treated as made from 
                contributions to the IRA Plus account to the extent 
                that such distribution, when added to all previous 
                distributions from the IRA Plus account, does not 
                exceed the aggregate amount of contributions to the IRA 
                Plus account. For purposes of the preceding sentence, 
                all IRA Plus accounts maintained for the benefit of an 
                individual shall be treated as 1 account.
                    ``(C) Exception from penalty tax.--Section 72(t) 
                shall not apply to any qualified distribution from an 
                IRA Plus account.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' means any payment or distribution--
                            ``(i) made on or after the date on which 
                        the individual attains age 59\1/2\,
                            ``(ii) made to a beneficiary (or to the 
                        estate of the individual) on or after the death 
                        of the individual,
                            ``(iii) attributable to the individual's 
                        being disabled (within the meaning of section 
                        72(m)(7)), or
                            ``(iv) which is a qualified special purpose 
                        distribution.
                    ``(B) Certain distributions within 5 years.--A 
                payment or distribution shall not be treated as a 
                qualified distribution under clause (i) of subparagraph 
                (A) if--
                            ``(i) it is made within the 5-taxable year 
                        period beginning with the 1st taxable year for 
                        which the individual made a contribution to an 
                        IRA Plus account (or such individual's spouse 
                        made a contribution to an IRA Plus account) 
                        established for such individual, or
                            ``(ii) in the case of a payment or 
                        distribution properly allocable (as determined 
                        in the manner prescribed by the Secretary) to a 
                        qualified rollover contribution (or income 
                        allocable thereto), it is made within the 5-
                        taxable year period beginning with the taxable 
                        year in which the rollover contribution was 
                        made.
                Clause (ii) shall not apply to a qualified rollover 
                contribution from an IRA plus account.
            ``(3) Rollovers.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any distribution which is transferred in a qualified 
                rollover contribution to an IRA Plus account.
                    ``(B) Income inclusion for rollovers from non-plus 
                iras.--In the case of any qualified rollover 
                contribution from an individual retirement plan (other 
                than an IRA Plus account) to an IRA Plus account 
                established for the benefit of the payee or 
                distributee, as the case may be--
                            ``(i) sections 72(t) and 408(d)(3) shall 
                        not apply, and
                            ``(ii) in any case where such contribution 
                        is made before January 1, 1999, any amount 
                        required to be included in gross income by 
                        reason of this paragraph shall be so included 
                        ratably over the 4-taxable year period 
                        beginning with the taxable year in which the 
                        payment or distribution is made.
                    ``(C) Additional reporting requirements.--The 
                Secretary shall require that trustees of IRA Plus 
                accounts, trustees of individual retirement plans, or 
                both, whichever is appropriate, shall include such 
                additional information in reports required under 
                section 408(i) as is necessary to ensure that amounts 
                required to be included in gross income under 
                subparagraph (B) are so included.
            ``(4) Qualified special purpose distribution.--For purposes 
        of this section, the term `qualified special purpose 
        distribution' means any distribution to which subparagraph (B), 
        (D), or (E) of section 72(t)(2) applies.
    ``(e) Qualified Rollover Contribution.--For purposes of this 
section--
            ``(1) In general.--The term `qualified rollover 
        contribution' means a rollover contribution to an IRA Plus 
        account from another such account, or from an individual 
        retirement plan, but only if such rollover contribution meets 
        the requirements of section 408(d)(3). For purposes of section 
        408(d)(3)(B), there shall be disregarded any qualified rollover 
        contribution from an individual retirement plan to an IRA Plus 
        account.
            ``(2) Conversions.--The conversion of an individual 
        retirement plan to an IRA Plus account shall be treated as if 
        it were a qualified rollover contribution.''
    (b) Excess Distributions Tax Not To Apply.--
            (1) Subparagraph (A) of section 4980A(d)(3) is amended by 
        inserting ``(other than IRA Plus accounts described in section 
        408A(b))'' after ``retirement plans''.
            (2) Section 4980A(e)(1) is amended by adding at the end the 
        following flush sentence:
        ``Such term shall not include any amount distributed from an 
        IRA Plus account or any qualified rollover contribution (as 
        defined in section 408A(e)) from an individual retirement plan 
        to an IRA Plus account.''
    (c) Excess Contributions.--Section 4973(b) is amended to read as 
follows:
    ``(b) Excess Contributions.--For purposes of this section--
            ``(1) In general.--In the case of individual retirement 
        accounts or individual retirement annuities, the term `excess 
        contributions' means the sum of--
                    ``(A) the amount determined under paragraph (2) for 
                the taxable year, plus
                    ``(B) the carryover amount determined under 
                paragraph (3) for the taxable year.
            ``(2) Current year.--The amount determined under this 
        paragraph for any taxable year is an amount equal to the sum 
        of--
                    ``(A) the excess (if any) of--
                            ``(i) the amount contributed for the 
                        taxable year to the accounts or for the 
                        annuities or bonds (other than IRA Plus 
                        accounts), over
                            ``(ii) the amount allowable as a deduction 
                        under section 219 for the taxable year, plus
                    ``(B) the excess (if any) of--
                            ``(i) the amount described in clause (i) 
                        (taking into account contributions to IRA Plus 
                        accounts) contributed for the taxable year, 
                        over
                            ``(ii) the amount allowable as a deduction 
                        under section 219 for the taxable year 
                        (computed without regard to subsection (g) of 
                        such section).
            ``(3) Carryover amount.--The carryover amount determined 
        under this paragraph for any taxable year is the amount 
        determined under paragraph (2) for the preceding taxable year, 
        reduced by the sum of--
                    ``(A) the distributions out of the account for the 
                taxable year which were included in the gross income of 
                the payee under section 408(d)(1),
                    ``(B) the distributions out of the account for the 
                taxable year to which section 408(d)(5) applies, and
                    ``(C) the excess (if any) of the amount determined 
                under paragraph (2)(B)(ii) over the amount determined 
                under paragraph (2)(B)(i).
            ``(4) Special rules.--For purposes of this subsection--
                    ``(A) Rollover contributions.--Rollover 
                distributions described in sections 402(c), 403(a)(4), 
                403(b)(8), 408(d)(3), and 408A(e) shall not be taken 
                into account.
                    ``(B) Contributions returned before due date.--Any 
                contribution which is distributed from an individual 
                retirement plan in a distribution to which section 
                408(d)(4) applies shall not be taken into account.
                    ``(C) Excess contributions treated as 
                contributions.--In applying paragraph (3)(C), the 
                determination as to amounts contributed for a taxable 
                year shall be made without regard to section 
                219(f)(6).''
    (d) Spousal IRA.--Clause (ii) of section 219(c)(1)(B) is amended to 
read as follows:
                            ``(ii) the compensation includible in the 
                        gross income of such individual's spouse for 
                        the taxable year reduced by--
                                    ``(I) the amount allowed as a 
                                deduction under subsection (a) to such 
                                spouse for such taxable year, and
                                    ``(II) the amount of any 
                                contribution on behalf of such spouse 
                                to an IRA Plus account under section 
                                408A for such taxable year.''
    (e) 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.''
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                  TITLE II--PENALTY-FREE DISTRIBUTIONS

SEC. 201. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
              TO PURCHASE FIRST HOMES, TO PAY HIGHER EDUCATION 
              EXPENSES, WHEN UNEMPLOYED, OR TO PAY MEDICAL EXPENSES OF 
              RELATIVES.

    (a) First Homes and Education.--
            (1) 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:
                    ``(E) Distributions from certain plans for first 
                home purchases or educational 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 (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.''
            (2) Definitions.--Section 72(t) is amended by adding at the 
        end the following new paragraphs:
            ``(7) Qualified first-time homebuyer distributions.--For 
        purposes of paragraph (2)(E)(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 (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) 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)(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) 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.''
            (3) Conforming amendment.--Subparagraph (B) of section 
        72(t)(2) is amended by striking ``or (D)'' and inserting ``, 
        (D), or (E)''.
    (b) Penalty-Free Distributions for Certain Unemployed 
Individuals.--Subparagraph (D) of section 72(t)(2) is amended--
            (1) in clause (i), 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), 
        and
            (2) by striking ``for health insurance premiums'' in the 
        heading thereof.
    (c) Treatment of Certain Family Members as Dependents for Purposes 
of Medical Distributions.--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.''.
    (d) 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)(7)) or 
                                distributions for qualified higher 
                                education expenses (as defined in 
                                section 72(t)(8)) 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)(7)) or for 
                the payment of qualified higher education expenses (as 
                defined in section 72(t)(8)).''
    (e) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after the date of the enactment of 
this Act.
                                 <all>