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106TH CONGRESS

1ST SESSION H. R. 876

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

amount of contributions to individual retirement accounts and the

amounts of adjusted gross income at which the IRA deduction phases

out for active participants in pension plans, and to allow penalty-free

distributions from individual retirement accounts and 401(k) plans for

certain purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 25, 1999

Mr. SAXTON (for himself, Mr. ARMEY, Mr. FROST, Mr. STUMP, Mr. MILLER

of Florida, Mr. SMITH of New Jersey, Mr. BAKER, Mr. BACHUS, and Mr.

CHABOT) 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 maximum amount of contributions to individual retirement accounts and the amounts of adjusted gross

income at which the IRA deduction phases out for active

participants in pension plans, and to allow penalty-free

distributions from individual retirement accounts and

401(k) plans for certain purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. INCREASE IN CONTRIBUTION LIMITS AND

2 AMOUNTS AT WHICH PHASE OUT OF DEDUC3 TION BEGINS FOR INDIVIDUAL RETIREMENT

4 ACCOUNT CONTRIBUTIONS.

5 (a) INCREASE IN MAXIMUM AMOUNT OF CONTRIBU6 TION TO INDIVIDUAL RETIREMENT ACCOUNTS.—

7 (1) IN GENERAL.—Subparagraph (A) of section

8 219(b)(1) of the Internal Revenue Code of 1986 (re9 lating to maximum amount of deduction) is amended

10 by striking ‘‘$2,000’’ and inserting ‘‘the applicable

11 amount’’.

12 (2) APPLICABLE AMOUNT.—Subsection (b) of

13 section 219 of such Code is amended by adding at

14 the end the following new paragraph:

15 ‘‘(5) APPLICABLE AMOUNT.—

16 ‘‘(A) IN GENERAL.—For purposes of para17 graph (1), the term ‘applicable amount’

18 means—

19 ‘‘(i) for any taxable year beginning in

20 1999, $2,500,

21 ‘‘(ii) for any taxable year beginning

22 after 1999 and before 2008, the applicable

23 amount determined under this paragraph

24 for the preceding taxable year, increased

25 by $500, and
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1 ‘‘(iii) for any taxable year beginning

2 after 2007, $7,000.

3 ‘‘(B) INFLATION ADJUSTMENT.—In the

4 case of a taxable year beginning in a calendar

5 year after 2008, the $7,000 amount contained

6 in subparagraph (A)(iii) shall be increased by

7 an amount equal to—

8 ‘‘(i) such dollar amount, multiplied by

9 ‘‘(ii) the cost-of-living adjustment

10 under section 1(f)(3) for the calendar year

11 in which the taxable year begins, deter12 mined by substituting ‘calendar year 2007’

13 for ‘calendar year 1992’ in subparagraph

14 (B) thereof.

15 If any amount as adjusted under the preceding

16 sentence is not a multiple of $10, such amount

17 shall be rounded to the nearest multiple of

18 $10.’’

19 (b) INCREASE OF AMOUNTS AT WHICH PHASE-OUT

20 OF DEDUCTION FOR IRA CONTRIBUTIONS BEGINS.—

21 (1) IN GENERAL.—Clauses (i) and (ii) of sec22 tion 219(g)(3)(B) of such Code (relating to limita23 tion on deduction for active participants in certain

24 pension plans) are amended to read as follows:
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1 ‘‘(i) In the case of a taxpayer filing a

2 joint return—

3 ‘‘(I) for taxable years beginning

4 in 1999, $60,000,

5 ‘‘(II) for taxable years beginning

6 after 1999 and before 2004, the appli7 cable dollar amount determined under

8 this subclause for the preceding tax9 able year, increased by $10,000, and

10 ‘‘(III) for taxable years beginning

11 after 2003, $110,000.

12 ‘‘(ii) In the case of any other taxpayer

13 (other than a married individual filing a

14 separate return)—

15 ‘‘(I) for taxable years beginning

16 in 1999, $40,000,

17 ‘‘(II) for taxable years beginning

18 after 1999 and before 2004, the appli19 cable dollar amount determined under

20 this subclause for the preceding tax21 able year, increased by $5,000, and

22 ‘‘(III) for taxable years beginning

23 after 2003, $60,000.’’
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1 (2) INFLATION ADJUSTMENT.—Paragraph (3)

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

3 at the end the following new subparagraph:

4 ‘‘(C) INFLATION ADJUSTMENT.—In the

5 case of a taxable year beginning in a calendar

6 year after 2004, the $110,000 amount con7 tained in subparagraph (B)(i)(III) and the

8 $60,000 amount contained in subparagraph

9 (B)(ii)(III) shall each be increased by an

10 amount equal to—

11 ‘‘(i) such dollar amount, multiplied by

12 ‘‘(ii) the cost-of-living adjustment

13 under section 1(f)(3) for the calendar year

14 in which the taxable year begins, deter15 mined by substituting ‘calendar year 2003’

16 for ‘calendar year 1992’ in subparagraph

17 (B) thereof.

18 If any amount as adjusted under the preceding

19 sentence is not a multiple of $100, such amount

20 shall be rounded to the nearest multiple of

21 $100.’’

22 (c) CONFORMING AMENDMENTS.—

23 (1) Paragraph (1) of section 408(a) of such

24 Code is amended by striking ‘‘$2,000’’ and inserting
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1 ‘‘the applicable amount (as in effect under section

2 219(b) for such taxable year)’’.

3 (2) Subparagraph (B) of section 408(b)(2) of

4 such Code is amended by striking ‘‘$2,000’’ and in5 serting ‘‘the applicable amount in effect under sec6 tion 219(b) for the taxable year of such individual’’.

7 (3) Subsection (b) of section 408 of such Code

8 is amended in the last sentence by striking ‘$2,000’’

9 and inserting ‘‘the applicable amount in effect under

10 section 219(b) for such taxable year’’.

11 (4) Subparagraph (A) of section 408(d)(5) of

12 such Code is amended by striking ‘‘dollar amount’’

13 and inserting ‘‘applicable amount’’.

14 (5) Subsection (j) of section 408 of such Code

15 is amended by striking ‘‘$2,000’’ and inserting ‘‘ap16 plicable’’.

17 (6) Paragraph (8) of section 408(p) of such

18 Code is amended by striking ‘‘$2,000’’ and inserting

19 ‘‘the dollar limitation in effect under section

20 219(b)(1)(A)’’.

21 (d) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to taxable years beginning after

23 December 31, 1998.
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1 SEC. 2. PENALTY-FREE DISTRIBUTIONS.

2 (a) PENALTY-FREE DISTRIBUTIONS FOR FIRST

3 HOMES AND HIGHER EDUCATION EXTENDED TO CER4 TAIN PLANS.—

5 (1) Subparagraphs (E) and (F) of section

6 72(t)(2) of the Internal Revenue Code of 1986 are

7 each amended by inserting ‘‘, or from amounts at8 tributable to employer contributions made pursuant

9 to elective deferrals described in subparagraph (A)

10 or (C) of section 402(g)(3) or section

11 501(c)(18)(D)(iii),’’ after ‘‘individual retirement

12 plan’’.

13 (2) The heading of subparagraph (E) of section

14 72(t)(2) of such Code is amended by striking ‘‘INDI15 VIDUAL RETIREMENT PLANS’’ and inserting ‘‘CER16 TAIN’’.

17 (b) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN

18 UNEMPLOYED INDIVIDUALS NOT LIMITED TO HEALTH

19 INSURANCE COSTS AND ALLOWED FROM 401(k) PLANS,

20 ETC.—Subparagraph (D) of section 72(t)(2) of such Code

21 is amended—

22 (1) in clause (i), by inserting ‘‘, or from

23 amounts attributable to employer contributions

24 made pursuant to elective deferrals described in sub25 paragraph (A) or (C) of section 402(g)(3) or section
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1 501(c)(18)(D)(iii),’’ after ‘‘individual retirement

2 plan’’,

3 (2) in clause (i), by inserting ‘‘and’’ at the end

4 of subclause (I), by striking ‘‘, and’’ at the end of

5 subclause (II) and inserting a period, and by strik6 ing subclause (III), and

7 (3) by striking ‘‘FOR HEALTH INSURANCE PRE8 MIUMS’’ in the subparagraph heading.

9 (c) UNLIMITED PENALTY-FREE DISTRIBUTIONS FOR

10 MEDICAL CARE AND EXPANDED DEFINITION OF DE11 PENDENTS FOR PURPOSES OF SUCH DISTRIBUTIONS.—

12 Subparagraph (B) of section 72(t)(2) of such Code is

13 amended by striking ‘‘medical care’’ and all that follows

14 and inserting ‘‘medical care, determined—

15 ‘‘(i) without regard to whether the

16 employee itemizes deductions for such tax17 able year, and

18 ‘‘(ii) in the case of a distribution from

19 an individual retirement plan, or from

20 amounts attributable to employer contribu21 tions made pursuant to elective deferrals

22 described in subparagraph (A) or (C) of

23 section 402(g)(3) or section

24 501(c)(18)(D)(iii)—
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1 ‘‘(I) without regard to whether or

2 not such expenses exceed 7.5 percent

3 of adjusted gross income, and

4 ‘‘(II) by treating an individual’s

5 dependents as including all children

6 and grandchildren of the individual

7 (or of such individual’s spouse), and

8 all ancestors of the individual (or of

9 such individual’s spouse).’’

10 (d) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to payments and distributions in

12 taxable years beginning after December 31, 1998.

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