I

103D CONGRESS

1ST SESSION H. R. 822

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

of individual retirement accounts, to increase amount deductible for contributions to such accounts, and to permit penalty-free withdrawals from

such accounts to pay educational, medical, and business start-up expenses.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 4, 1993

Mr. BROWN of California 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 availability of individual retirement accounts, to increase amount deductible for contributions to such accounts, and to permit penalty-free withdrawals from such

accounts to pay educational, medical, and business startup expenses.

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 ‘‘Middle Class Flexible

5 Savings Act of 1993’’.
2

•HR 822 IH

1 SEC. 2. HIGHER MAXIMUM IRA DEDUCTION AND INCOME

2 PHASEOUT LIMITS; INFLATION ADJUSTMENT

3 OF MAXIMUM IRA DEDUCTION AND PHASE4 OUT LIMITS.

5 (a) HIGHER MAXIMUM IRA DEDUCTION.—

6 (1) IN GENERAL.—The following provisions of

7 the Internal Revenue Code of 1986 are each amend8 ed by striking ‘‘$2,000’’ and inserting ‘‘$3,000’’:

9 (A) Subsections (b)(1)(A) and (c)(2) of

10 section 219.

11 (B) Subsections (a)(1), (b), and (j) of sec12 tion 408.

13 (2) CONFORMING AMENDMENT.—Sections

14 219(c)(2) and 408(d)(5) are each amended by strik15 ing ‘‘$2,250’’ and inserting ‘‘$3,500’’.

16 (b) HIGHER INCOME PHASEOUT LIMITS.—

17 (1) Subparagraph (B) of section 219(g)(3) of

18 such Code is amended—

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

20 ‘‘$50,000’’, and

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

22 ‘‘$30,000’’.

23 (2) Clause (ii) of section 219(g)(2)(A) of such

24 Code is amended to read as follows:

25 ‘‘(ii) $12,000.’’
3

•HR 822 IH

1 (c) INFLATION ADJUSTMENT OF MAXIMUM IRA DE2 DUCTION AND INCOME PHASEOUT LIMITS.—Section 219

3 of such Code is amended by inserting after subsection (f)

4 the following new subsection:

5 ‘‘(g) INFLATION ADJUSTMENT OF MAXIMUM DEDUC6 TION AND INCOME PHASEOUT LIMITS.—

7 ‘‘(1) IN GENERAL.—In the case of any taxable

8 year beginning in a calendar year after 1993, each

9 applicable dollar amount shall be increased by an

10 amount equal to—

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

12 ‘‘(B) the cost-of-living adjustment under

13 section 1(f)(3) for the calendar year in which

14 the taxable year begins, determined by sub15 stituting ‘calendar year 1992’ for ‘calendar year

16 1989’ in subparagraph (B) thereof.

17 ‘‘(2) APPLICABLE DOLLAR AMOUNT.—For pur18 poses of paragraph (1), the term ‘applicable dollar

19 amount’ means—

20 ‘‘(A) the $3,000 amount in subsections

21 (b)(1)(A), (c)(2), and (c)(3) of this section and

22 in subsections (a)(1), (b), and (j) of section

23 408,

24 ‘‘(B) the $3,500 amount in subsection

25 (c)(2) of this section and in section 408(d)(5),
4

•HR 822 IH

1 ‘‘(C) the $50,000 and $30,000 amounts in

2 subsection (g)(3)(B), and

3 ‘‘(D) the $12,000 amount in subsection

4 (g)(2)(A)(ii).

5 ‘‘(3) ROUNDING.—If any amount as adjusted

6 under paragraph (1) is not a multiple of $50, such

7 amount shall be rounded to the nearest multiple of

8 $50 (or, if such amount is a multiple of $25 and not

9 of $50, such amount shall be rounded to the next

10 highest multiple of $50).’’

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

12 this section shall apply to taxable years beginning after

13 December 31, 1992.

14 SEC. 3. IRA FOR NONWORKING SPOUSE WITH YOUNG CHIL15 DREN COMPUTED ON BASIS OF COMPENSA16 TION OF BOTH SPOUSES.

17 (a) IN GENERAL.—Subsection (c) of section 219 of

18 the Internal Revenue Code of 1986 (relating to special

19 rules for certain married individuals) is amended by add20 ing at the end thereof the following new paragraph:

21 ‘‘(3) HIGHER LIMIT FOR SPOUSE WITH YOUNG

22 CHILDREN.—

23 ‘‘(A) IN GENERAL.—In the case of a quali24 fying spouse, the amount allowable as a deduc-
5

•HR 822 IH

1 tion under paragraph (1) shall not exceed the

2 lesser of—

3 ‘‘(i) $3,000, or

4 ‘‘(ii) the sum of—

5 ‘‘(I) the compensation includible

6 in such individual’s gross income for

7 the taxable year, plus

8 ‘‘(II) the compensation includible

9 in the gross income of such individ10 ual’s spouse for the taxable year re11 duced by the amount allowable as a

12 deduction under subsection (a) to

13 such spouse for such taxable year.

14 ‘‘(B) QUALIFYING SPOUSE.—For purposes

15 of subparagraph (A), the term ‘qualifying

16 spouse’ means any spouse of an individual if—

17 ‘‘(i) such individual and spouse file a

18 joint return for the taxable year,

19 ‘‘(ii) such spouse has less than $1,000

20 of compensation (determined without re21 gard to section 911) for the taxable year,

22 and

23 ‘‘(iii) such spouse has a child (as de24 fined in section 151(c)(3)) who has not at25 tained age 6 as of the close of such taxable
6

•HR 822 IH

1 year and who is a dependent (as defined in

2 section 152) of the taxpayer for such

3 year.’’

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

5 this section shall apply to taxable years beginning after

6 December 31, 1992.

7 SEC. 4. PENALTY-FREE WITHDRAWALS FROM CERTAIN

8 PLANS TO PAY EDUCATIONAL EXPENSES,

9 MEDICAL EXPENSES, AND BUSINESS START10 UP EXPENSES.

11 (a) EDUCATIONAL EXPENSES AND BUSINESS START12 UP EXPENSES.—

13 (1) IN GENERAL.—Paragraph (2) of section

14 72(t) of the Internal Revenue Code of 1986 (relating

15 to exceptions to 10-percent additional tax on early

16 distributions from qualified retirement plans) is

17 amended by adding at the end thereof the following

18 new subparagraph:

19 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

20 PLANS FOR EDUCATIONAL EXPENSES AND BUSI21 NESS START-UP EXPENSES.—

22 ‘‘(i) IN GENERAL.—Distributions to

23 an individual from an individual retirement

24 plan, or from amounts attributable to em25 ployer contributions made pursuant to
7

•HR 822 IH

1 elective deferrals described in subpara2 graph (A) or (C) of section 402(g)(3) or

3 section 501(c)(18)(D)(iii) to the extent

4 such distributions do not exceed the sum

5 of—

6 ‘‘(I) the qualified higher edu7 cation expenses (as defined in para8 graph (6)) of the taxpayer for the tax9 able year, and

10 ‘‘(II) the start-up expenditures

11 (as defined in section 195(c)) of the

12 taxpayer for the taxable year.

13 ‘‘(ii) ADJUSTED GROSS INCOME

14 LIMIT.—Clause (i) shall apply to distribu15 tions from an individual retirement plan

16 only if the adjusted gross income of the

17 distributee for the taxable year in which

18 the distribution occurs does not exceed—

19 ‘‘(I) $60,000 in the case of an

20 unmarried individual,

21 ‘‘(II) $70,000 in the case of a

22 joint return, and

23 ‘‘(III) $35,000 in the case of a

24 married individual filing a separate

25 return.’’
8

•HR 822 IH

1 (2) QUALIFIED HIGHER EDUCATION EXPENSES

2 DEFINED.—Section 72(t) of such Code is amended

3 by adding at the end thereof the following new para4 graph:

5 ‘‘(6) QUALIFIED HIGHER EDUCATION EX6 PENSES.—For purposes of paragraph (2)(D)—

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

8 higher education expenses’ means tuition, fees,

9 books, supplies, and equipment required for the

10 enrollment or attendance of—

11 ‘‘(i) the taxpayer,

12 ‘‘(ii) the taxpayer’s spouse, or

13 ‘‘(iii) a child (as defined in section

14 151(c)(3)) of the taxpayer,

15 at an eligible educational institution (as defined

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

17 ‘‘(B) COORDINATION WITH SAVINGS BOND

18 PROVISIONS.—The amount of qualified higher

19 education expenses for any taxable year shall be

20 reduced by any amount excludable from gross

21 income under section 135.’’

22 (b) CATASTROPHIC ILLNESS EXPENSES.—Subpara23 graph (A) of section 72(t)(3) of such Code is amended

24 to read as follows:
9

•HR 822 IH

1 ‘‘(A) CERTAIN EXCEPTIONS NOT TO APPLY

2 TO INDIVIDUAL RETIREMENT PLANS.—

3 ‘‘(i) IN GENERAL.—Except as pro4 vided in clause (ii), subparagraphs (A)(v),

5 (B), and (C) of paragraph (2) shall not

6 apply to distributions from an individual

7 retirement plan.

8 ‘‘(ii) DISTRIBUTIONS FOR MEDICAL

9 EXPENSES FROM CERTAIN INDIVIDUAL RE10 TIREMENT PLANS.—Subparagraph (B) of

11 paragraph (2) shall apply to distributions

12 from an individual retirement plan if the

13 adjusted gross income of the distributee

14 for the taxable year in which the distribu15 tion occurs does not exceed the applicable

16 limitation under paragraph (2)(D).’’

17 (c) CONFORMING AMENDMENTS.—

18 (1) Section 401(k)(2)(B)(i) of such Code is

19 amended by striking ‘‘or’’ at the end of subclause

20 (III), by striking ‘‘and’’ at the end of subclause (IV)

21 and inserting ‘‘or’’, and by inserting after subclause

22 (IV) the following new subclause:

23 ‘‘(V) the date on which distribu24 tions for qualified higher education

25 expenses (as defined in section
10

•HR 822 IH

1 72(t)(6)) or start-up expenses (as de2 fined in section 195(c)) are made,

3 and’’.

4 (2) Section 403(b)(11) of such Code is amend5 ed by striking ‘‘or’’ at the end of subparagraph (A),

6 by striking the period at the end of subparagraph

7 (B) and inserting ‘‘, or’’, and by inserting after sub8 paragraph (B) the following new subparagraph:

9 ‘‘(C) for the payment of qualified higher

10 education expenses (as defined in section

11 72(t)(6)) or start-up expenses (as defined in

12 section 195(c)).’’

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

14 this section shall apply to payments and distributions after

15 the date of the enactment of this Act.

Æ