Middle Class Flexible Savings Act of 1993

Summary: Middle Class Flexible Savings Act of 1993 - Amends the Internal Revenue Code to increase the retirement savings deduction and the maximum individual retirement account contribution from $2,000 to $3,000.  Raises income phase-out limits.  Provides an inflation adjustment for such amounts. 
Allows higher retirement savings deductions for nonworking spouses in households with one or more children under the age of six. 
Allows penalty-free distributions from certain retirement plans for:  (1) qualified higher education expenses of the taxpayer, spouse, or child; (2) business start-up expenditures; and (3) medical expenses. Limits such distributions to individuals whose adjusted gross income does not exceed:  $60,000 in the case of an unmarried individual, $70,000 in the case of a joint return, and $35,000 in the case of married individuals filing separately.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Middle Class Flexible Savings Act of 
1993''.

SEC. 2. HIGHER MAXIMUM IRA DEDUCTION AND INCOME PHASEOUT LIMITS; 
              INFLATION ADJUSTMENT OF MAXIMUM IRA DEDUCTION AND 
              PHASEOUT LIMITS.

    (a) Higher Maximum IRA Deduction.--
            (1) In general.--The following provisions of the Internal 
        Revenue Code of 1986 are each amended by striking ``$2,000'' 
        and inserting ``$3,000'':
                    (A) Subsections (b)(1)(A) and (c)(2) of section 
                219.
                    (B) Subsections (a)(1), (b), and (j) of section 
                408.
            (2) Conforming amendment.--Sections 219(c)(2) and 408(d)(5) 
        are each amended by striking ``$2,250'' and inserting 
        ``$3,500''.
    (b) Higher Income Phaseout Limits.--
            (1) Subparagraph (B) of section 219(g)(3) of such Code is 
        amended--
                    (A) by striking ``$40,000'' and inserting 
                ``$50,000'', and
                    (B) by striking ``$25,000'' and inserting 
                ``$30,000''.
            (2) Clause (ii) of section 219(g)(2)(A) of such Code is 
        amended to read as follows:
                            ``(ii) $12,000.''
    (c) Inflation Adjustment of Maximum IRA Deduction and Income 
Phaseout Limits.--Section 219 of such Code is amended by inserting 
after subsection (f) the following new subsection:
    ``(g) Inflation Adjustment of Maximum Deduction and Income Phaseout 
Limits.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1993, each applicable dollar 
        amount shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment under section 
                1(f)(3) for the calendar year in which the taxable year 
                begins, determined by substituting `calendar year 1992' 
                for `calendar year 1989' in subparagraph (B) thereof.
            ``(2) Applicable dollar amount.--For purposes of paragraph 
        (1), the term `applicable dollar amount' means--
                    ``(A) the $3,000 amount in subsections (b)(1)(A), 
                (c)(2), and (c)(3) of this section and in subsections 
                (a)(1), (b), and (j) of section 408,
                    ``(B) the $3,500 amount in subsection (c)(2) of 
                this section and in section 408(d)(5),
                    ``(C) the $50,000 and $30,000 amounts in subsection 
                (g)(3)(B), and
                    ``(D) the $12,000 amount in subsection 
                (g)(2)(A)(ii).
            ``(3) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $50, such amount shall be rounded to 
        the nearest multiple of $50 (or, if such amount is a multiple 
        of $25 and not of $50, such amount shall be rounded to the next 
        highest multiple of $50).''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 3. IRA FOR NONWORKING SPOUSE WITH YOUNG CHILDREN COMPUTED ON BASIS 
              OF COMPENSATION OF BOTH SPOUSES.

    (a) In General.--Subsection (c) of section 219 of the Internal 
Revenue Code of 1986 (relating to special rules for certain married 
individuals) is amended by adding at the end thereof the following new 
paragraph:
            ``(3) Higher limit for spouse with young children.--
                    ``(A) In general.--In the case of a qualifying 
                spouse, the amount allowable as a deduction under 
                paragraph (1) shall not exceed the lesser of--
                            ``(i) $3,000, or
                            ``(ii) the sum of--
                                    ``(I) the compensation includible 
                                in such individual's gross income for 
                                the taxable year, plus
                                    ``(II) the compensation includible 
                                in the gross income of such 
                                individual's spouse for the taxable 
                                year reduced by the amount allowable as 
                                a deduction under subsection (a) to 
                                such spouse for such taxable year.
                    ``(B) Qualifying spouse.--For purposes of 
                subparagraph (A), the term `qualifying spouse' means 
                any spouse of an individual if--
                            ``(i) such individual and spouse file a 
                        joint return for the taxable year,
                            ``(ii) such spouse has less than $1,000 of 
                        compensation (determined without regard to 
                        section 911) for the taxable year, and
                            ``(iii) such spouse has a child (as defined 
                        in section 151(c)(3)) who has not attained age 
                        6 as of the close of such taxable year and who 
                        is a dependent (as defined in section 152) of 
                        the taxpayer for such year.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1992.

SEC. 4. PENALTY-FREE WITHDRAWALS FROM CERTAIN PLANS TO PAY EDUCATIONAL 
              EXPENSES, MEDICAL EXPENSES, AND BUSINESS START-UP 
              EXPENSES.

    (a) Educational Expenses and Business Start-up Expenses.--
            (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 thereof the 
        following new subparagraph:
                    ``(D) Distributions from certain plans for 
                educational expenses and business start-up expenses.--
                            ``(i) In general.--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) to the extent such 
                        distributions do not exceed the sum of--
                                    ``(I) the qualified higher 
                                education expenses (as defined in 
                                paragraph (6)) of the taxpayer for the 
                                taxable year, and
                                    ``(II) the start-up expenditures 
                                (as defined in section 195(c)) of the 
                                taxpayer for the taxable year.
                            ``(ii) Adjusted gross income limit.--Clause 
                        (i) shall apply to distributions from an 
                        individual retirement plan only if the adjusted 
                        gross income of the distributee for the taxable 
                        year in which the distribution occurs does not 
                        exceed--
                                    ``(I) $60,000 in the case of an 
                                unmarried individual,
                                    ``(II) $70,000 in the case of a 
                                joint return, and
                                    ``(III) $35,000 in the case of a 
                                married individual filing a separate 
                                return.''
            (2) Qualified higher education expenses defined.--Section 
        72(t) of such Code is amended by adding at the end thereof the 
        following new paragraph:
            ``(6) Qualified higher education expenses.--For purposes of 
        paragraph (2)(D)--
                    ``(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) a child (as defined in section 
                        151(c)(3)) of the taxpayer,
                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.''
    (b) Catastrophic Illness Expenses.--Subparagraph (A) of section 
72(t)(3) of such Code is amended to read as follows:
                    ``(A) Certain exceptions not to apply to individual 
                retirement plans.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), subparagraphs (A)(v), (B), and (C) 
                        of paragraph (2) shall not apply to 
                        distributions from an individual retirement 
                        plan.
                            ``(ii) Distributions for medical expenses 
                        from certain individual retirement plans.--
                        Subparagraph (B) of paragraph (2) shall apply 
                        to distributions from an individual retirement 
                        plan if the adjusted gross income of the 
                        distributee for the taxable year in which the 
                        distribution occurs does not exceed the 
                        applicable limitation under paragraph (2)(D).''
    (c) Conforming Amendments.--
            (1) Section 401(k)(2)(B)(i) of such Code 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 
                                distributions for qualified higher 
                                education expenses (as defined in 
                                section 72(t)(6)) or start-up expenses 
                                (as defined in section 195(c)) are 
                                made, and''.
            (2) Section 403(b)(11) of such Code 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 the payment of qualified higher education 
                expenses (as defined in section 72(t)(6)) or start-up 
                expenses (as defined in section 195(c)).''
    (d) Effective Date.--The amendments made by this section shall 
apply to payments and distributions after the date of the enactment of 
this Act.