I

104TH CONGRESS

1ST SESSION H. R. 1040

To amend the Internal Revenue Code of 1986 to increase the deduction

for retirement savings, to permit nonemployed spouses a full IRA deduction, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 24, 1995

Mr. BAKER of California (for himself, Mr. STEARNS, Mr. LIPINSKI, Mr.

FORBES, Mr. CANADY, Mr. EMERSON, Mr. FIELDS of Texas, Mrs. MEYERS of Kansas, Mr. SOLOMON, Mr. BACHUS, Mr. CALVERT, Mr.

HOSTETTLER, Mr. BAKER of Louisiana, Mr. ENGLISH of Pennsylvania,

Mr. WICKER, and Mr. MCCRERY) introduced the following bill; which was

referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to increase

the deduction for retirement savings, to permit

nonemployed spouses a full IRA deduction, and for other

purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Family Reinvestment

5 Act of 1995’’.
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1 SEC. 2. MODIFICATIONS TO IRA DEDUCTION.

2 (a) INCREASE IN MAXIMUM AMOUNT OF DEDUC3 TION.—Subparagraph (A) of section 219(b)(1) of the In4 ternal Revenue Code of 1986 (relating to maximum

5 amount of deduction) is amended by striking ‘‘$2,000’’

6 and inserting ‘‘$2,500’’.

7 (b) INCREASE IN INCOME PHASEOUT LEVELS.—

8 (1) IN GENERAL.—Subparagraph (B) of section

9 219(g)(3) of such Code is amended—

10 (A) by striking ‘‘$40,000’’ and inserting

11 ‘‘$200,000’’, and

12 (B) by striking ‘‘$25,000’’ and inserting

13 ‘‘$100,000’’.

14 (2) PHASEIN OF DEDUCTION BY REASON OF IN15 CREASE IN PHASEOUT LEVELS.—Paragraph (3) of

16 section 219(g) of such Code is amended by adding

17 at the end the following new subparagraph:

18 ‘‘(C) PHASEIN OF DEDUCTION BY REASON

19 OF INCREASE IN PHASEOUT LEVELS.—In the

20 case of taxable years beginning before January

21 1, 2004—

22 ‘‘(i) IN GENERAL.—In the case of a

23 taxpayer to whom this subparagraph ap24 plies for any taxable year, each of the dol25 lar limitations referred to in paragraph (1)

26 for such taxable year shall be treated as
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1 being the limitation determined in accord2 ance with the following table:

‘‘In the case of taxable years The limitation

beginning in: is:

1995 ............................................................... $ 250

1996 ............................................................... 500

1997 ............................................................... 750

1998 ............................................................... 1,000

1999 ............................................................... 1,250

2000 ............................................................... 1,500

2001 ............................................................... 1,750

2002 ............................................................... 2,000

2003 ............................................................... 2,250.

3 ‘‘(ii) TAXPAYERS TO WHOM SUBPARA4 GRAPH APPLIES.—This subparagraph shall

5 apply to any taxpayer whose adjusted

6 gross income for the taxable year ex7 ceeds—

8 ‘‘(I) $50,000 in a case to which

9 subparagraph (B)(i) applies, and

10 ‘‘(II) $35,000 in a case to which

11 subparagraph (B)(ii) applies.’’.

12 (c) IRA DEDUCTION ALLOWED TO NONEMPLOYED

13 SPOUSES.—Subsection (c) of section 219 of such Code is

14 amended to read as follows:

15 ‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDI16 VIDUALS.—

17 ‘‘(1) IN GENERAL.—In the case of an individual

18 to whom this paragraph applies for the taxable year,

19 the limitation of paragraph (1) of subsection (b)

20 shall be equal to the lesser of—
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1 ‘‘(A) $2,500, or

2 ‘‘(B) the sum of—

3 ‘‘(i) the compensation includible in

4 such individual’s gross income for the tax5 able year, plus

6 ‘‘(ii) the compensation includible in

7 the gross income of such individual’s

8 spouse for the taxable year reduced by the

9 amount allowable as a deduction under

10 subsection (a) to such spouse for such tax11 able year.

12 ‘‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1)

13 APPLIES.—Paragraph (1) shall apply to any individ14 ual if—

15 ‘‘(A) such individual files a joint return for

16 the taxable year, and

17 ‘‘(B) the amount of compensation (if any)

18 includible in such individual’s gross income for

19 the taxable year is less than the compensation

20 includible in the gross income of such individ21 ual’s spouse for the taxable year.’’

22 (d) INFLATION ADJUSTMENTS.—Subsection (f) of

23 section 219 of such Code is amended by adding at the

24 end thereof the following new paragraph:
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1 ‘‘(8) INFLATION ADJUSTMENTS.—In the case of

2 a taxable year beginning in a calendar year after

3 2004, each dollar amount set forth in subsections

4 (b)(1)(A), (c)(1)(A), and (g)(3)(B) shall be in5 creased by an amount equal to—

6 ‘‘(A) such dollar amount, multiplied by

7 ‘‘(B) the cost-of-living adjustment deter8 mined under section 1(f)(3) for such calendar

9 year by substituting ‘calendar year 2003’ for

10 ‘calendar year 1992’ in subparagraph (B)

11 thereof.

12 If any increase determined under the preceding sen13 tence is not a multiple of $100, such increase shall

14 be rounded to the nearest multiple of $100.’’

15 (e) CONFORMING AMENDMENTS.—

16 (1) Subsections (a)(1) and (b) of section 408(a)

17 of such Code are each amended by striking

18 ‘‘$2,000’’ and inserting ‘‘the dollar limitation in ef19 fect under section 219(b)(1)(A)’’.

20 (2) Subparagraph (A) of section 408(d)(5) of

21 such Code is amended by striking ‘‘$2,250’’ and in22 serting ‘‘the dollar limitation in effect under section

23 219(b)(1)(A)’’.

24 (3) Subsection (j) of section 408 of such Code

25 is amended by striking ‘‘the $2,000 amounts con-
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1 tained’’ and inserting ‘‘the dollar limitations referred

2 to’’.

3 (f) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to taxable years beginning after

5 December 31, 1994.

6 SEC. 3. REPAYABLE DISTRIBUTIONS FROM INDIVIDUAL RE7 TIREMENT ACCOUNTS FOR EDUCATIONAL

8 EXPENSES AND FIRST-TIME HOMEBUYERS.

9 (a) GENERAL RULE.—Section 408 of the Internal

10 Revenue Code of 1986 (relating to individual retirement

11 accounts) is amended by redesignating subsection (p) as

12 subsection (q) and by inserting after subsection (o) the

13 following new subsection:

14 ‘‘(p) REPAYABLE DISTRIBUTIONS FROM INDIVIDUAL

15 RETIREMENT ACCOUNTS FOR EDUCATIONAL EXPENSES

16 AND FIRST-TIME HOMEBUYERS.—

17 ‘‘(1) IN GENERAL.—Notwithstanding any other

18 provision of this section, gross income shall not in19 clude any qualified distribution.

20 ‘‘(2) REPAYMENT REQUIREMENT.—

21 ‘‘(A) ADDITION TO TAX.—If the required

22 recontributions made by the taxpayer during

23 the repayment period are less than the total re24 quired repayment, the tax imposed by this

25 chapter for the last taxable year in the repay-
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1 ment period shall be increased by the amount

2 determined under subparagraph (B).

3 ‘‘(B) DETERMINATION OF AMOUNT.—The

4 amount determined under this subparagraph

5 shall be an amount which bears the same ratio

6 to the adjusted tax amount as—

7 ‘‘(i) the required recontributions dur8 ing the repayment period, bear to

9 ‘‘(ii) the total required repayment.

10 ‘‘(C) TOTAL REQUIRED REPAYMENT.—For

11 purposes of this paragraph, the term ‘total re12 quired repayment’ means the sum of—

13 ‘‘(i) the qualified distribution, plus

14 ‘‘(ii) interest on the non-recontributed

15 balance of such distribution for the repay16 ment period computed at the prime rate

17 and compounded annually.

18 ‘‘(D) REPAYMENT PERIOD.—For purposes

19 of this paragraph, the term ‘repayment period’

20 means, with respect to any qualified distribu21 tion, the taxable year in which such distribution

22 is received and the 15 succeeding taxable years

23 (10 succeeding taxable years in the case of a

24 qualified distribution described in paragraph

25 (3)(B)).
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1 ‘‘(E) ADJUSTED TAX AMOUNT.—For pur2 poses of this paragraph, the term ‘adjusted tax

3 amount’ means, with respect to any qualified

4 distribution, the sum of—

5 ‘‘(i) the aggregate reduction in the tax

6 imposed by this chapter for the taxable

7 year in which such distribution is received

8 by reason of the exclusion under paragraph

9 (1), and

10 ‘‘(ii) interest on the amount of such

11 reduction for the repayment period com12 puted at the prime rate and compounded

13 annually.

14 ‘‘(F) PRIME RATE.—For purposes of this

15 paragraph, the term ‘prime rate’ means the av16 erage predominant prime rate quoted by com17 mercial banks to large business, as determined

18 by the Board of Governors of the Federal Re19 serve System.

20 ‘‘(3) QUALIFIED DISTRIBUTION.—For purposes

21 of this paragraph, the term ‘qualified distribution’

22 means any distributions to an individual from an in23 dividual retirement plan—

24 ‘‘(A) if such distributions are qualified

25 first-time homebuyer distributions, or
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1 ‘‘(B) to the extent such distributions do

2 not exceed the qualified higher education ex3 penses of the taxpayer for the taxable year in

4 which received.

5 The term ‘qualified distribution’ shall not include

6 any distribution to the extent such distribution re7 duces the balance of the amounts in individual re8 tirement plans of the taxpayer below $1,000.

9 ‘‘(4) QUALIFIED FIRST-TIME HOMEBUYER DIS10 TRIBUTIONS.—For purposes of this subsection—

11 ‘‘(A) IN GENERAL.—The term ‘qualified

12 first-time homebuyer distribution’ means any

13 payment or distribution received by an individ14 ual to the extent such payment or distribution

15 is used by the individual before the close of the

16 60th day after the day on which such payment

17 or distribution is received to pay qualified ac18 quisition costs with respect to a principal resi19 dence of a first-time homebuyer who is such in20 dividual or the spouse, child, or grandchild of

21 such individual.

22 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

23 For purposes of this paragraph, the term

24 ‘qualified acquisition costs’ means the costs of

25 acquiring, constructing, or reconstructing a res-
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1 idence. Such term includes any usual or reason2 able settlement, financing, or other closing

3 costs.

4 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

5 DEFINITIONS.—For purposes of this paragraph:

6 ‘‘(i) FIRST-TIME HOMEBUYER.—The

7 term ‘first-time homebuyer’ means any in8 dividual if—

9 ‘‘(I) such individual (and if mar10 ried, such individual’s spouse) had no

11 present ownership interest in a prin12 cipal residence during the 3-year pe13 riod ending on the date of acquisition

14 of the principal residence to which

15 this paragraph applies, and

16 ‘‘(II) subsection (a)(6), (h), or

17 (k) of section 1034 did not suspend

18 the running of any period of time

19 specified in section 1034 with respect

20 to such individual on the day before

21 the date the distribution is applied

22 pursuant to subparagraph (A)(ii).

23 ‘‘(ii) PRINCIPAL RESIDENCE.—The

24 term ‘principal residence’ has the same

25 meaning as when used in section 1034.
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1 ‘‘(iii) DATE OF ACQUISITION.—The

2 term ‘date of acquisition’ means the date—

3 ‘‘(I) on which a binding contract

4 to acquire the principal residence to

5 which subparagraph (A) applies is en6 tered into, or

7 ‘‘(II) on which construction or re8 construction of such a principal resi9 dence is commenced.

10 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC11 QUISITION.—If any distribution from any indi12 vidual retirement plan fails to meet the require13 ments of subparagraph (A) solely by reason of

14 a delay or cancellation of the purchase or con15 struction of the residence, the amount of the

16 distribution may be contributed to an individual

17 retirement plan as provided in subsection

18 (d)(3)(A)(i) (determined by substituting ‘120

19 days’ for ‘60 days’ in such section), except

20 that—

21 ‘‘(i) subsection (d)(3)(B) shall not be

22 applied to such contribution, and

23 ‘‘(ii) such amount shall not be taken

24 into account in determining whether sub-
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1 section (d)(3)(A)(i) applies to any other

2 amount.

3 ‘‘(5) QUALIFIED HIGHER EDUCATION EX4 PENSES.—For purposes of this subsection:

5 ‘‘(A) IN GENERAL.—The term ‘qualified

6 higher education expenses’ means tuition, fees,

7 books, supplies, and equipment required for the

8 enrollment or attendance of—

9 ‘‘(i) the taxpayer,

10 ‘‘(ii) the taxpayer’s spouse, or

11 ‘‘(iii) the taxpayer’s child (as defined

12 in section 151(c)(3)) or grandchild,

13 at an eligible educational institution (as defined

14 in section 135(c)(3)).

15 ‘‘(B) COORDINATION WITH SAVINGS BOND

16 PROVISIONS.—The amount of qualified higher

17 education expenses for any taxable year shall be

18 reduced by any amount excludable from gross

19 income under section 135.

20 ‘‘(6) RECONTRIBUTION OF QUALIFIED DIS21 TRIBUTIONS.—

22 ‘‘(A) IN GENERAL.—If an individual re23 ceived a qualified distribution, such individual

24 shall make required recontributions to an indi-
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1 vidual retirement plan in the manner provided

2 in this paragraph.

3 ‘‘(B) METHOD OF MAKING RECON4 TRIBUTION.—Any required recontribution—

5 ‘‘(i) shall be made during the repay6 ment period for the qualified distribution,

7 ‘‘(ii) shall not exceed the required re8 payment amount reduced by any prior

9 recontribution under this paragraph with

10 respect to such distribution, and

11 ‘‘(iii) shall be made by making a pay12 ment in cash for the benefit of such indi13 vidual to an individual retirement plan.

14 An individual making a required recontribution

15 under this paragraph shall designate (in the

16 manner prescribed by the Secretary) such con17 tribution as a required recontribution under

18 this paragraph and shall specify the qualified

19 distribution in respect of which such

20 recontribution is being made.

21 ‘‘(C) TREATED AS ROLLOVER CONTRIBU22 TION.—For purposes of this title, any required

23 recontribution under this paragraph shall be

24 treated as a rollover contribution described in

25 subsection (d)(3).
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1 ‘‘(7) OTHER SPECIAL RULES.—

2 ‘‘(A) BASIS RULES NOT AFFECTED.—The

3 tax treatment under this chapter of any dis4 tribution (other than a qualified distribution)

5 shall be determined as if this subsection had

6 not been enacted.

7 ‘‘(B) AGGREGATION RULES.—For purposes

8 of this subsection—

9 ‘‘(i) all qualified distributions de10 scribed in paragraph (3)(A) received by an

11 individual during a taxable year shall be

12 treated as a single distribution so de13 scribed, and

14 ‘‘(ii) all qualified distributions de15 scribed in paragraph (3)(B) received by an

16 individual during a taxable year shall be

17 treated as a single distribution so de18 scribed.’’

19 (b) EFFECTIVE DATE.—The amendment made by

20 this section shall apply to distributions received in taxable

21 years beginning after December 31, 1994.

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