Small Business Start-up Savings Accounts Act of 2016

Summary: Small Business Start-up Savings Accounts Act of 2016 This bill amends the Internal Revenue Code to provide for tax-preferred Small Business Start-up Savings Accounts to pay for trade or business expenses, including the purchase of equipment or facilities, marketing, training, incorporation, and accounting fees. The bill allows annual nondeductible contributions to such accounts of up to $10,000, subject to a $150,000 limit on total contributions to the account and adjustments for inflation after 2017. The bill sets forth rules for the tax treatment of contributions to and rollovers or distributions from the accounts, similar to rules governing individual retirement accounts (IRAs). Qualified distributions from the accounts are excluded from gross income. 

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Start-up Savings 
Accounts Act of 2016''.

SEC. 2. ESTABLISHMENT OF SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 408A the following new section:

``SEC. 408B. SMALL BUSINESS START-UP SAVINGS ACCOUNTS.

    ``(a) General Rule.--Except as provided in this section, a Small 
Business Start-up Savings Account shall be treated for purposes of this 
title in the same manner as an individual retirement plan.
    ``(b) Small Business Start-Up Savings Account.--For purposes of 
this title, the term `Small Business Start-up Savings Account' means an 
individual retirement plan which is designated (in such manner as the 
Secretary may prescribe) at the time of establishment of the plan as a 
Small Business Start-up Savings Account.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be allowed 
        under section 219 for a contribution to a Small Business Start-
        up Savings Account.
            ``(2) Contribution limit.--
                    ``(A) In general.--The aggregate amount of 
                contributions for any taxable year to all Small 
                Business Start-up Savings Accounts maintained for the 
                benefit of an individual shall not exceed $10,000.
                    ``(B) Aggregate limitation.--The aggregate of the 
                amount of contributions for all taxable years with 
                respect to all Small Business Start-up Savings Accounts 
                maintained for the benefit of an individual shall not 
                exceed $150,000.
                    ``(C) Cost of living adjustment.--
                            ``(i) In general.--In the case of a taxable 
                        year beginning after 2017, the $10,000 amount 
                        in subparagraph (A) 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) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2016' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $500, 
                        such amount shall be rounded to the next lowest 
                        multiple of $500.
            ``(3) Contributions permitted after age 70\1/2\.--
        Contributions to a Small Business Start-up Savings Account may 
        be made even after the individual for whom the account is 
        maintained has attained age 70\1/2\.
            ``(4) Rollovers from retirement plans not allowed.--A 
        taxpayer shall not be allowed to make a qualified rollover 
        contribution to a Small Business Start-up Savings Account from 
        any eligible retirement plan (as defined in section 
        402(c)(8)(B)), except as may be provided by the Secretary in 
        the case of a rollover from another Small Business Start-up 
        Savings Account.
            ``(5) Income based on modified adjusted gross income.--
                    ``(A) In general.--In the case of a taxable year in 
                which the taxpayer's adjusted gross income exceeds 
                $150,000 ($300,000 in the case of a joint return), the 
                dollar amount in effect for such taxable year under 
                subsection (c)(2) shall be reduced (but not below zero) 
                by the amount determined under subparagraph (B).
                    ``(B) Amount of reduction.--The amount determined 
                under this subparagraph shall be the amount which bears 
                the same ratio to such limitation as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's adjusted gross 
                                income for such taxable year, over
                                    ``(II) $150,000 ($300,000 in the 
                                case of a joint return), bears to
                            ``(ii) $25,000.
                    ``(C) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means the adjusted 
                gross income of the taxpayer for the taxable year 
                increased by any amount excluded from gross income 
                under section 911, 931, or 933.
    ``(d) Treatment of Distributions.--
            ``(1) Tax treatment.--
                    ``(A) Exclusion of qualified distributions.--Any 
                qualified distribution from a Small Business Start-up 
                Savings Account shall not be includible in gross 
                income.
                    ``(B) Inclusion of other distributions.--
                Distributions from a Small Business Start-up Savings 
                Account which is not a qualified distribution shall be 
                included in gross income and, for purposes of section 
                1, treated as a net capital gain.
            ``(2) Qualified distribution.--For purposes of this 
        subsection, the term `qualified distribution' means, with 
        respect to any taxable year, any payment or distribution from a 
        Small Business Start-up Savings Account--
                    ``(A) to the extent the amount of such payment or 
                distribution does not exceed the sum of--
                            ``(i) the aggregate amounts paid or 
                        incurred by the taxpayer for such taxable year 
                        with respect to a trade or business for the 
                        purchase of equipment or facilities, marketing, 
                        training, incorporation, and accounting fees, 
                        and
                            ``(ii) the aggregate capital contributions 
                        of the taxpayer with respect to a trade or 
                        business for the taxable year (but only to the 
                        extent such amounts are used in such trade or 
                        business for purposes described in clause (i)), 
                        and
                    ``(B) which, in the case of a payment or 
                distribution subsequent to the first payment or 
                distribution from such account (or any predecessor to 
                such account)--
                            ``(i) is made not later than the close of 
                        the 5th taxable year beginning after the date 
                        of such first payment or distribution, and
                            ``(ii) is made with respect to the same 
                        trade or business with respect to which such 
                        first payment or distribution was made.
            ``(3) Treatment after death of account beneficiary.--If, by 
        reason of the death of the account beneficiary, any person 
        acquires the account beneficiary's interest in a Small Business 
        Start-up Savings Account--
                    ``(A) such account shall cease to be a Small 
                Business Start-up Savings Account as of the date of 
                death, and
                    ``(B) an amount equal to the fair market value of 
                the assets in such account on such date shall be 
                includible--
                            ``(i) in the case of a person who is not 
                        the estate of such beneficiary, in such 
                        person's gross income for the taxable year 
                        which includes such date, or
                            ``(ii) in the case of a person who is the 
                        estate of such beneficiary, in such 
                        beneficiary's gross income for the last taxable 
                        year of such beneficiary.
                    ``(C) Special rules.--
                            ``(i) Reduction of inclusion for predeath 
                        expenses.--The amount includible in gross 
                        income under subparagraph (B) shall be reduced 
                        by the amounts described in paragraph (2) which 
                        were incurred by the decedent before the date 
                        of the decedent's death and paid by such person 
                        within 1 year after such date.
                            ``(ii) Deduction for estate taxes.--An 
                        appropriate deduction shall be allowed under 
                        section 691(c) to any person (other than the 
                        decedent) with respect to amounts included in 
                        gross income under clause (i) by such person.
            ``(4) Mandatory distribution rules not to apply.--Section 
        401(a)(9)(A) and the incidental death benefit requirements of 
        section 401(a) shall not apply to any Small Business Start-up 
        Savings Account.''.
    (b) Excess Contributions.--Section 4973 of such Code is amended by 
adding at the end the following new subsection:
    ``(i) Excess Contributions to Small Business Start-Up Savings 
Accounts.--For purposes of this section, in the case of contributions 
to all Small Business Start-up Savings Accounts (within the meaning of 
section 408B(b)) maintained for the benefit of an individual, the term 
`excess contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed to such accounts for 
                the taxable year, over
                    ``(B) the amount allowable as a contribution under 
                section 408B(c)(2)(A) for such taxable year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts for the 
                taxable year, and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable as a 
                        contribution under section 408B(c)(2)(A) for 
                        such taxable year, over
                            ``(ii) the amount contributed to such 
                        accounts for such taxable year, and
            ``(3) the excess (if any) of--
                    ``(A) the excess (if any) of--
                            ``(i) the aggregate amounts contributed to 
                        such accounts for all taxable years, over
                            ``(ii) the aggregate amount allowable as 
                        contributions under section 408B(c)(2)(B) for 
                        all taxable years, over
                    ``(B) the amount determined under this paragraph 
                for all preceding taxable years.''.
    (c) Conforming Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 of such Code is amended by 
inserting after the item relating to section 408A the following new 
item:

``Sec. 408B. Small Business Start-up Savings Accounts.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2016.