Rollovers from retirement plans to health savings accounts

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139A the following new section:

139B.

HSA funding distributions

(a)

In general

In the case of an eligible individual, gross income does not include a qualified HSA funding distribution. (b)

Qualified HSA funding distribution

For purposes of this section, the term qualified HSA funding distribution means any distribution from an eligible retirement plan of an eligible individual to the extent that such distribution is contributed to a health savings account of such individual (or of the surviving spouse, a dependent of the surviving spouse, or alternate payee (as defined in section 414(p)(8)) of such individual) not later than the 60th day after the day on which such individual (or such surviving spouse, dependent, or alternate payee) receives such distribution or in a direct trustee-to-trustee transfer. (c)

Distribution treated as rollover to HSA

For purposes of sections 223 and 4973(g), a qualified HSA funding distribution shall be treated as a rollover contribution described in section 223(f)(5). (d)

Definitions

For purposes of this section— (1)

Eligible retirement plan

The term eligible retirement plan has the meaning given such term by section 402(c)(8)(B), except that such term shall also include an eligible deferred compensation plan maintained by an eligible employer described in section 457(e)(1)(B). (2)

Eligible individual

The term eligible individual has the meaning given such term by section 223(c)(1).

(b)

10-percent penalty on early distributions not to apply

Section 72(t)(2)(A) of such Code (relating to subsection not to apply to certain distributions) is amended by striking or at the end of clause (vi), by striking the period at the end of clause (vii) and inserting , or, and by inserting after clause (vii) the following new clause:

(viii)a qualified HSA funding distribution (as defined by section 139B(b)).

(c)

Conforming amendments

(1)Section 401(k)(2)(B)(i) of such Code (relating to cash or deferred arrangements) 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 funding of a health savings account under section 139B, and

(2)Section 402(c)(4) of such Code (relating to rules applicable to rollovers from exempt trusts) is amended by striking and at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting , and, and by inserting after subparagraph (C) the following new subparagraph:

(D)any qualified HSA funding distribution (as defined by section 139B(b)).

(3)Section 403(a) of such Code (relating to taxability of beneficiary under a qualified annuity plan) is amended by inserting after paragraph (1) the following new paragraph:

(2)

Special rule for qualified HSA funding distribution

To the extent provided in section 139B, paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection.

(4)Section 403(b) of such Code (relating to taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school) is amended by inserting after paragraph (1) the following new paragraph:

(2)

Special rule for qualified HSA funding distribution

To the extent provided in section 139B, paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection.

(5)Section 457(a) of such Code (relating to year of inclusion in gross income) is amended by adding at the end the following new paragraph:

(3)

Special rule for qualified HSA funding distribution

To the extent provided in section 139B, paragraph (1) shall not apply to amounts otherwise includible in gross income under this subsection.

(d)

Effective date

The amendments made by this section shall apply to distributions in taxable years beginning after December 31, 2004.