1.This Act may be cited as the
Savings for Working Families Act of
2005
.
2.The purposes of this Act are to provide for
the establishment of individual development account programs that will—
(1)provide
individuals and families with limited means an opportunity to accumulate assets
and to enter the financial mainstream,
(2)promote
education, homeownership, and the development of small businesses,
(3)stabilize
families and build communities, and
(4)support continued
United States economic expansion.
3.As used in this Act:
(1)
(A)The term eligible individual means, with
respect to any taxable year, an individual who—
(i)has
attained the age of 18 but not the age of 61 as of the last day of such taxable
year,
(ii)is
a citizen or lawful permanent resident (within the meaning of section
7701(b)(6) of the Internal Revenue Code of 1986) of the United States as of the
last day of such taxable year,
(iii)was not a
student (as defined in section 151(c)(4) of such Code) for the immediately
preceding taxable year,
(iv)is
not an individual with respect to whom a deduction under section 151 of such
Code is allowable to another taxpayer for a taxable year of the other taxpayer
ending during the immediately preceding taxable year of the individual,
(v)is
not a taxpayer described in subsection (c), (d), or (e) of section 6402 of such
Code for the immediately preceding taxable year,
(vi)is
not a taxpayer described in section 1(d) of such Code for the immediately
preceding taxable year, and
(vii)is a taxpayer
the modified adjusted gross income of whom for the immediately preceding
taxable year does not exceed—
(I)$20,000, in the
case of a taxpayer described in section 1(c) of such Code,
(II)$30,000, in the
case of a taxpayer described in section 1(b) of such Code, and
(III)$40,000, in the
case of a taxpayer described in section 1(a) of such Code.
(B)
(i)In the case of any taxable year beginning after 2005,
each dollar amount referred to in subparagraph (A)(vii) shall be increased by
an amount equal to—
(I)such dollar
amount, multiplied by
(II)the
cost-of-living adjustment determined under section (1)(f)(3) of the Internal
Revenue Code of 1986 for the calendar year in which the taxable year begins, by
substituting 2004
for 1992
.
(ii)If
any amount as adjusted under clause (i) is not a multiple of $50, such amount
shall be rounded to the nearest multiple of $50.
(C)Modified
adjusted gross incomeFor purposes of subparagraph (A)(v), the
term modified adjusted gross income means adjusted gross
income—
(i)determined
without regard to sections 86, 893, 911, 931, and 933 of the Internal Revenue
Code of 1986, and
(ii)increased by the
amount of interest received or accrued by the taxpayer during the taxable year
which is exempt from tax.
(2)Individual
Development AccountThe term Individual Development
Account means an account established for an eligible individual as part
of a qualified individual development account program, but only if the written
governing instrument creating the account meets the following
requirements:
(A)The owner of the
account is the individual for whom the account was established.
(B)No contribution
will be accepted unless it is in cash, and, except in the case of any qualified
rollover, contributions will not be accepted for the taxable year in excess of
$1,500 on behalf of any individual.
(C)The trustee of
the account is a qualified financial institution.
(D)The assets of the
account will not be commingled with other property except in a common trust
fund or common investment fund.
(E)Except as
provided in section 7(b), any amount in the account may be paid out only for
the purpose of paying the qualified expenses of the account owner.
(3)The term parallel account means a separate,
parallel individual or pooled account for all matching funds and earnings
dedicated to an Individual Development Account owner as part of a qualified
individual development account program, the trustee of which is a qualified
financial institution.
(4)Qualified
financial institution
(A)The term qualified financial institution
means any person authorized to be a trustee of any individual retirement
account under section 408(a)(2) of the Internal Revenue Code of 1986.
(B)
(i)Nothing in this paragraph shall be construed as
preventing a person described in subparagraph (A) from collaborating with 1 or
more qualified nonprofit organizations or Indian tribes to carry out an
individual development account program established under section 4.
(ii)Qualified
nonprofit organizationThe term qualified nonprofit
organization means—
(I)any organization
described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt
from taxation under section 501(a) of such Code,
(II)any community
development financial institution certified by the Community Development
Financial Institution Fund,
(III)any credit
union chartered under Federal or State law, or
(IV)any public
housing agency as defined in section 3(b)(6) of the United States Housing Act
of 1937 (42 U.S.C. 1437a(b)(6)).
(iii)The term Indian tribe means any Indian tribe
as defined in section 4(12) of the Native American Housing Assistance and
Self-Determination Act of 1996 (25 U.S.C. 4103(12), and includes any tribally
designated housing entity (as defined in section 4(21) of such Act (25 U.S.C.
4103(21)), tribal subsidiary, subdivision, or other wholly owned tribal
entity.
(5)Qualified
Individual Development Account programThe term qualified
individual development account program means a program established upon
approval of the Secretary under section 4 after December 31, 2006, under
which—
(A)Individual
Development Accounts and parallel accounts are held in trust by a qualified
financial institution, and
(B)additional
activities determined by the Secretary, in consultation with the Secretary of
Health and Human Services, as necessary to responsibly develop and administer
accounts, including recruiting, providing financial education and other
training to Account owners, and regular program monitoring, are carried out by
the qualified financial institution.
(6)Qualified
expense distribution
(A)The term qualified expense distribution
means any amount paid (including through electronic payments) or distributed
out of an Individual Development Account or a parallel account established for
an eligible individual if such amount—
(i)is
used exclusively to pay the qualified expenses of the Individual Development
Account owner or such owner’s spouse or dependents,
(ii)is
paid by the qualified financial institution—
(I)except as
otherwise provided in this clause, directly to the unrelated third party to
whom the amount is due,
(II)in the case of
any qualified rollover, directly to another Individual Development Account and
parallel account, or
(III)in the case of
a qualified final distribution, directly to the spouse, dependent, or other
named beneficiary of the deceased Account owner, and
(iii)is paid after
the Account owner has completed a financial education course if required under
section 5(b).
(B)
(i)The term qualified expenses means any of the
following expenses approved by the qualified financial institution:
(I)Qualified higher
education expenses.
(II)Qualified
first-time homebuyer costs.
(III)Qualified
business capitalization or expansion costs.
(IV)Qualified
rollovers.
(V)Qualified final
distribution.
(ii)Qualified
higher education expenses
(I)The term qualified higher education expenses
has the meaning given such term by section 529(e)(3) of the Internal Revenue
Code of 1986, determined by treating the Account owner, the owner’s spouse, or
one or more of the owner’s dependents as a designated beneficiary, and reduced
as provided in section 25A(g)(2) of such Code.
(II)Coordination
With other benefitsThe amount of expenses which may be taken
into account for purposes of section 135, 529, or 530 of such Code for any
taxable year shall be reduced by the amount of any qualified higher education
expenses taken into account as qualified expense distributions during such
taxable year.
(iii)Qualified
first-time homebuyer costsThe term qualified first-time
homebuyer costs means qualified acquisition costs (as defined in section
72(t)(8)(C) of the Internal Revenue Code of 1986) with respect to a principal
residence (within the meaning of section 121 of such Code) for a qualified
first-time homebuyer (as defined in section 72(t)(8)(D)(i) of such
Code).
(iv)Qualified
business capitalization or expansion costs
(I)The term qualified business capitalization or
expansion costs means qualified expenditures for the capitalization or
expansion of a qualified business pursuant to a qualified business plan.
(II)The term qualified expenditures means
expenditures normally associated with starting or expanding a business and
included in a qualified business plan, including costs for capital, plant, and
equipment, inventory expenses, and attorney and accounting fees.
(III)The term qualified business means any
business that does not contravene any law.
(IV)The term qualified business plan means
a business plan which has been approved by the qualified financial institution
and which meets such requirements as the Secretary may specify.
(v)The term qualified rollover means the
complete distribution of the amounts in an Individual Development Account and
parallel account to another Individual Development Account and parallel account
established in another qualified financial institution for the benefit of the
Account owner.
(vi)Qualified
final distributionThe term qualified final
distribution means, in the case of a deceased Account owner, the
complete distribution of the amounts in the Individual Development Account and
parallel account directly to the spouse, any dependent, or other named
beneficiary of the deceased.
(7)The
term Secretary means the Secretary of the Treasury.
4.Structure and
Administration of qualified Individual Development Account programs
(a)Establishment
of qualified Individual Development Account programsAny
qualified financial institution may apply to the Secretary for approval to
establish 1 or more qualified individual development account programs which
meet the requirements of this Act.
(b)
(1)All qualified individual development account programs
shall consist of the following 2 components for each participant:
(A)An Individual
Development Account to which an eligible individual may contribute cash in
accordance with section 5.
(B)A parallel
account to which all matching funds shall be deposited in accordance with
section 6.
(2)A qualified financial institution may tailor its
qualified individual development account program to allow matching funds to be
spent on 1 or more of the categories of qualified expenses.
(c)Coordination
With public housing agency individual Savings
AccountsSection 3(e)(2) of the
United States Housing Act of 1937
(42 U.S.C.
1437a(e)(2)) is amended by inserting or in any
Individual Development Account established under the Savings for Working
Families Act of 2005
after subsection
.
(d)Tax treatment
of parallel Accounts
(1)Chapter 77 (relating to miscellaneous provisions) is
amended by adding at the end the following new section:
7529.Tax
incentives for individual development parallel AccountsFor purposes of this title—
(1)any account
described in section 4(b)(1)(B) of the Savings for Working Families Act of 2005
shall be exempt from taxation,
(2)except as
provided in section 45G, no item of income, expense, basis, gain, or loss with
respect to such an account may be taken into account, and
(3)any amount
withdrawn from such an account shall not be includible in gross
income.
.
(2)The table of sections for chapter 77 is amended by
adding at the end the following new item:
Sec. 7529. Tax incentives for individual
development parallel
accounts.
.
(e)Coordination of
certain expensesSection 25A(g)(2) is amended by striking
and
at the end of subparagraph (C), by striking the period at
the end of subparagraph (D) and inserting , and
, and by adding
at the end the following new subparagraph:
(D)a qualified
expense distribution with respect to qualified higher education expenses from
an Individual Development Account or a parallel account under section 7(a) of
the Savings for Working Families Act of
2005.
.
5.Procedures for
opening and maintaining an Individual Development Account and qualifying for
matching funds
(a)An eligible individual may open an Individual Development
Account with a qualified financial institution upon certification that such
individual has never maintained any other Individual Development Account (other
than an Individual Development Account to be terminated by a qualified
rollover).
(b)Required
completion of financial education course
(1)Before becoming eligible to withdraw funds to pay for
qualified expenses, owners of Individual Development Accounts must complete 1
or more financial education courses specified in the qualified individual
development account program.
(2)Standard and
applicability of courseThe Secretary, in consultation with
representatives of qualified individual development account programs and
financial educators, shall not later than January 1, 2006, establish minimum
quality standards for the contents of financial education courses and providers
of such courses described in paragraph (1) and a protocol to exempt individuals
from the requirement under paragraph (1) in the case of hardship, lack of need,
the attainment of age 65, or a qualified final distribution.
(c)Proof of status
as an eligible individualFederal income tax forms for the
immediately preceding taxable year and any other evidence of eligibility which
may be required by a qualified financial institution shall be presented to such
institution at the time of the establishment of the Individual Development
Account and in any taxable year in which contributions are made to the Account
to qualify for matching funds under section 6(b)(1)(A).
(d)Special rule in
the case of married individualsFor purposes of this Act, if,
with respect to any taxable year, 2 married individuals file a Federal joint
income tax return, then not more than 1 of such individuals may be treated as
an eligible individual with respect to the succeeding taxable year.
6.Deposits by
qualified Individual Development Account programs
(a)The qualified financial institution shall deposit all
matching funds for each Individual Development Account into a parallel account
at a qualified financial institution.
(b)Regular
deposits of matching funds
(1)Subject to paragraph (2), the qualified financial
institution shall deposit into the parallel account with respect to each
eligible individual the following amounts:
(A)A
dollar-for-dollar match for the first $500 contributed by the eligible
individual into an Individual Development Account with respect to any taxable
year of such individual.
(B)Any matching
funds provided by State, local, or private sources in accordance with the
matching ratio set by those sources.
(2)A deposit of the amounts described in paragraph (1)
shall be made into a parallel account—
(A)in the case of
amounts described in paragraph (1)(A), not later than 30 days after the end of
the calendar quarter during which the contribution described in such paragraph
was made, and
(B)in the case of
amounts described in paragraph (1)(B), not later than 2 business days after
such amounts were provided.
(3)
For allowance of tax credit for Individual
Development Account subsidies, including matching funds, see section 45J of the
Internal Revenue Code of 1986.
(c)Deposit of
matching funds into Individual Development Account of individual who has
attained age 65In the case of an Individual Development Account
owner who attains the age of 65, the qualified financial institution shall
deposit the funds in the parallel account with respect to such individual into
the Individual Development Account of such individual on the later of—
(1)the day which is
the 1-year anniversary of the deposit of such funds in the parallel account,
or
(2)the first
business day of the taxable year of such individual following the taxable year
in which such individual attained age 65.
(d)Uniform
accounting regulationsTo ensure proper recordkeeping and
determination of the tax credit under section 45J of the Internal Revenue Code
of 1986, the Secretary shall prescribe regulations with respect to accounting
for matching funds in the parallel accounts.
(e)Regular
reporting of AccountsAny qualified financial institution shall
report the balances in any Individual Development Account and parallel account
of an individual on not less than an annual basis to such individual.
7.
(a)Withdrawals for
qualified expenses
(1)An Individual Development Account owner may withdraw
funds in order to pay qualified expense distributions from such
individual’s—
(A)Individual
Development Account, but only from funds which have been on deposit in such
Account for at least 1 year, and
(B)parallel account,
but only—
(i)from matching
funds which have been on deposit in such parallel account for at least 1
year,
(ii)from earnings in
such parallel account, after all matching funds described in clause (i) have
been withdrawn, and
(iii)to the extent
such withdrawal does not result in a remaining balance in such parallel account
which is less than the remaining balance in the Individual Development Account
after such withdrawal.
(2)Upon
receipt of a withdrawal request which meets the requirements of paragraph (1),
the qualified financial institution shall directly transfer the funds
electronically to the distributees described in section 3(6)(A)(ii). If a
distributee is not equipped to receive funds electronically, the qualified
financial institution may issue such funds by paper check to the
distributee.
(b)Withdrawals for
nonqualified expensesAn Individual Development Account owner may
withdraw any amount of funds from the Individual Development Account for
purposes other than to pay qualified expense distributions, but if, after such
withdrawal, the amount in the parallel account of such owner (excluding
earnings on matching funds) exceeds the amount remaining in such Individual
Development Account, then such owner shall forfeit from the parallel account
the lesser of such excess or the amount withdrawn.
(c)Withdrawals
from Accounts of noneligible individualsIf the individual for
whose benefit an Individual Development Account is established ceases to be an
eligible individual, such account shall remain an Individual Development
Account, but such individual shall not be eligible for any further matching
funds under section 6(b)(1)(A) for contributions which are made to the Account
during any taxable year when such individual is not an eligible
individual.
(d)Effect of
pledging Account as securityIf, during any taxable year of the
individual for whose benefit an Individual Development Account is established,
that individual uses the Account, the individual’s parallel account, or any
portion thereof as security for a loan, the portion so used shall be treated as
a withdrawal of such portion from the Individual Development Account for
purposes other than to pay qualified expenses.
8.Certification
and termination of qualified Individual Development Account programs
(a)Upon establishing a qualified individual development
account program under section 4, a qualified financial institution shall
certify to the Secretary at such time and in such manner as may be prescribed
by the Secretary and accompanied by any documentation required by the
Secretary, that—
(1)the accounts
described in subparagraphs (A) and (B) of section 4(b)(1) are operating
pursuant to all the provisions of this Act, and
(2)the qualified
financial institution agrees to implement an information system necessary to
monitor the cost and outcomes of the qualified individual development account
program.
(b)Authority to
terminate qualified IDA programIf the Secretary determines that
a qualified financial institution under this Act is not operating a qualified
individual development account program in accordance with the requirements of
this Act (and has not implemented any corrective recommendations directed by
the Secretary), the Secretary shall terminate such institution’s authority to
conduct the program. If the Secretary is unable to identify a qualified
financial institution to assume the authority to conduct such program, then any
funds in a parallel account established for the benefit of any individual under
such program shall be deposited into the Individual Development Account of such
individual as of the first day of such termination.
9.Reporting,
monitoring, and evaluation
(a)Responsibilities
of qualified financial institutionsEach qualified financial
institution that operates a qualified individual development account program
under section 4 shall report annually to the Secretary within 90 days after the
end of each calendar year on—
(1)the number of
individuals making contributions into Individual Development Accounts and the
amounts contributed,
(2)the amounts
contributed into Individual Development Accounts by eligible individuals and
the amounts deposited into parallel accounts for matching funds,
(3)the amounts
withdrawn from Individual Development Accounts and parallel accounts, and the
purposes for which such amounts were withdrawn,
(4)the balances
remaining in Individual Development Accounts and parallel accounts, and
(5)such other
information needed to help the Secretary monitor the effectiveness of the
qualified individual development account program (provided in a
non-individually-identifiable manner).
(b)Responsibilities
of the Secretary
(1)Not later than 12 months after the date of the enactment
of this Act, the Secretary, in consultation with the Secretary of Health and
Human Services, shall develop and implement a protocol and process to monitor
the cost and outcomes of the qualified individual development account programs
established under section 4.
(2)For each year after 2007, the Secretary shall submit a
progress report to Congress on the status of such qualified individual
development account programs. Such report shall, to the extent data are
available, include from a representative sample of qualified individual
development account programs information on—
(A)the
characteristics of participants, including age, gender, race or ethnicity,
marital status, number of children, employment status, and monthly
income,
(B)deposits,
withdrawals, balances, uses of Individual Development Accounts, and participant
characteristics,
(C)the
characteristics of qualified individual development account programs, including
match rate, economic education requirements, permissible uses of accounts,
staffing of programs in full time employees, and the total costs of programs,
and
(D)process
information on program implementation and administration, especially on
problems encountered and how problems were solved.
(3)Use of Accounts
in rural areas encouragedThe Secretary shall develop methods to
encourage the use of Individual Development Accounts in rural areas.
10.Authorization
of appropriations
(a)There is authorized
to be appropriated to the Secretary $1,000,000 for fiscal year 2007 and for
each fiscal year through 2014, for the purposes of implementing this Act,
including the reporting, monitoring, and evaluation required under section 9,
to remain available until expended.
(b)There
is authorized to be appropriated to the Secretary $20,000,000—
(1)to make grants to
qualified nonprofit organizations and Indian tribes to help defray the
administrative costs associated with the operation of individual development
account programs, including the required financial education courses,
and
(2)to provide
technical assistance to qualified nonprofit organizations and Indian tribes in
meeting such program requirements.
11.Matching funds
for Individual Development Accounts provided through a tax credit for qualified
financial institutions
(a)Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end the
following new section:
45J.Individual
Development Account investment credit
(a)For purposes of section 38, the individual development
account investment credit determined under this section with respect to any
eligible entity for any taxable year is an amount equal to the individual
development account investment provided by such eligible entity during the
taxable year under an individual development account program established under
section 4 of the Savings for Working Families Act of 2005.
(b)For the purposes of this section, the term applicable
tax means the excess (if any) of—
(1)the tax imposed
under this chapter (other than the taxes imposed under the provisions described
in subparagraphs (C) through (Q) of section 26(b)(2)), over
(2)the credits
allowable under subpart B (other than this section) and subpart D of this
part.
(c)Individual
Development Account investmentFor purposes of this section, the
term individual development account investment means, with respect
to an individual development account program in any taxable year, an amount
equal to the sum of—
(1)the aggregate
amount of dollar-for-dollar matches under such program under section 6(b)(1)(A)
of the Savings for Working Families Act of 2005 for such taxable year,
plus
(2)$50 with respect
to each Individual Development Account maintained—
(A)as of the end of
such taxable year, but only if such taxable year is within the 7-taxable-year
period beginning with the taxable year in which such Account is opened,
and
(B)with a balance of
not less than $100 (other than the taxable year in which such Account is
opened).
(d)For purposes of this section, except as provided in
regulations, the term eligible entity means a qualified financial
institution.
(e)For purposes of this section, any term used in this
section and also in the Savings for Working Families Act of 2005 shall have the
meaning given such term by such Act.
(f)
(1)No deduction or credit (other than under this section)
shall be allowed under this chapter with respect to any expense which—
(A)is taken into
account under subsection (c)(1)(A) in determining the credit under this
section, or
(B)is attributable
to the maintenance of an Individual Development Account.
(2)Solely for purposes of paragraph (1)(B), the amount
attributable to the maintenance of an Individual Development Account shall be
deemed to be the dollar amount of the credit allowed under subsection (c)(l)(B)
for each taxable year such Individual Development Account is maintained.
(g)Credit may be
transferred
(1)An eligible entity may transfer any credit allowable to
the eligible entity under subsection (a) to any person other than to another
eligible entity which is exempt from tax under this title. The determination as
to whether a credit is allowable shall be made without regard to the tax-exempt
status of the eligible entity.
(2)Consent
required for revocationAny transfer under paragraph (1) may be
revoked only with the consent of the Secretary.
(h)The
Secretary may prescribe such regulations as may be necessary or appropriate to
carry out this section, including
(1)such regulations
as necessary to insure that any credit described in subsection (g)(1) is
claimed once and not retransferred by a transferee, and
(2)regulations
providing for a recapture of the credit allowed under this section
(notwithstanding any termination date described in subsection (i)) in cases
where there is a forfeiture under section 7(b) of the Savings for Working
Families Act of 2005 in a subsequent taxable year of any amount which was taken
into account in determining the amount of such credit.
(i)
(1)This section shall apply to any expenditure made in any
taxable year ending after December 31, 2006, and beginning on or before January
1, 2014, with respect to any Individual Development Account which—
(A)is opened before
January 1, 2012, and
(B)as determined by
the Secretary, when added to all of the previously opened Individual
Development Accounts, does not exceed 900,000 Accounts.
Notwithstanding the preceding
sentence, this section shall apply to amounts which are described in subsection
(c)(1) and which are timely deposited into a parallel account during the 30-day
period following the end of the last taxable year beginning on or before
January 1, 2014.(2)Determination
of limitationThe limitation on the number of Individual
Development Accounts under paragraph (1)(B) shall be allocated by the Secretary
among eligible individuals as such individuals open such Accounts under
qualified individual development account programs, except that, in the case of
300,000 Accounts, such limitation shall be equally allocated among the
States.
.
(b)Credit treated
as business creditSection 38(b) (relating to current year
business credit) is amended by striking plus
at the end of
paragraph (18), by striking the period at the end of paragraph (19) and
inserting , plus
, and by adding at the end the following new
paragraph:
(20)the individual
development account investment credit determined under section
45J(a).
.
(c)The table of sections for subpart C of part IV of
subchapter A of chapter 1 is amended by adding at the end the following new
item:
Sec. 45J. Individual development account
investment
credit.
.
(d)Report
regarding Account maintenance feesThe Secretary of the Treasury
shall study the adequacy of the amount specified in section 45J(c)(2) of the
Internal Revenue Code of 1986 (as added by this section). Not later than
December 31, 2010, the Secretary of the Treasury shall report the findings of
the study described in the preceding sentence to Congress.
(e)The amendments made by this section shall apply to taxable
years ending after December 31, 2006.
12.Account funds
disregarded for purposes of certain means-tested Federal programsNotwithstanding any other provision of
Federal law (other than the Internal Revenue Code of 1986) that requires
consideration of 1 or more financial circumstances of an individual, for the
purpose of determining eligibility to receive, or the amount of, any assistance
or benefit authorized by such provision to be provided to or for the benefit of
such individual, any amount (including earnings thereon) in any Individual
Development Account of such individual and any matching deposit made on behalf
of such individual (including earnings thereon) in any parallel account shall
be disregarded for such purpose with respect to any period during which such
individual maintains or makes contributions into such Individual Development
Account.