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103D CONGRESS

1ST SESSION H. R. 337

To amend the Internal Revenue Code of 1986 to permit nondeductible taxfree individual retirement accounts.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

Mrs. ROUKEMA 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 permit

nondeductible tax-free individual retirement accounts.

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

3 SECTION 1. ESTABLISHMENT OF NONDEDUCTIBLE TAX4 FREE INDIVIDUAL RETIREMENT ACCOUNTS.

5 (a) IN GENERAL.—Subpart A of part I of subchapter

6 D of chapter 1 of the Internal Revenue Code of 1986 (re7 lating to pension, profit-sharing, stock bonus plans, etc.)

8 is amended by inserting after section 408 the following

9 new section:
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1 ‘‘SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.

2 ‘‘(a) GENERAL RULE.—Except as provided in this

3 section, a special individual retirement account shall be

4 treated for purposes of this title in the same manner as

5 an individual retirement plan.

6 ‘‘(b) SPECIAL INDIVIDUAL RETIREMENT AC7 COUNT.—For purposes of this title, the term ‘special indi8 vidual retirement account’ means an individual retirement

9 plan which is designated at the time of establishment of

10 the plan as a special individual retirement account.

11 ‘‘(c) TREATMENT OF CONTRIBUTIONS.—

12 ‘‘(1) NO DEDUCTION ALLOWED.—No deduction

13 shall be allowed under section 219 for a contribution

14 to a special individual retirement account.

15 ‘‘(2) CONTRIBUTION LIMIT.—The aggregate

16 amount of contributions for any taxable year to all

17 special individual retirement accounts maintained for

18 the benefit of an individual shall not exceed the ex19 cess (if any) of—

20 ‘‘(A) the maximum amount allowable as a

21 deduction under section 219 with respect to

22 such individual for such taxable year (deter23 mined without regard to section 219(g)), over

24 ‘‘(B) the amount so allowed.

25 ‘‘(3) SPECIAL RULES FOR QUALIFIED TRANS26 FERS.—
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1 ‘‘(A) IN GENERAL.—No rollover contribu2 tion may be made to a special individual retire3 ment account unless it is a qualified transfer.

4 ‘‘(B) LIMIT NOT TO APPLY.—The limita5 tion under paragraph (2) shall not apply to a

6 qualified transfer to a special individual retire7 ment account.

8 ‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—

9 ‘‘(1) IN GENERAL.—Except as provided in this

10 subsection, any amount paid or distributed out of a

11 special individual retirement account shall not be in12 cluded in the gross income of the distributee.

13 ‘‘(2) EXCEPTION FOR EARNINGS ON CONTRIBU14 TIONS HELD LESS THAN 5 YEARS.—

15 ‘‘(A) IN GENERAL.—Any amount distrib16 uted out of a special individual retirement ac17 count which consists of earnings allocable to

18 contributions made to the account during the 5-

19 year period ending on the day before such dis20 tribution shall be included in the gross income

21 of the distributee for the taxable year in which

22 the distribution occurs.

23 ‘‘(B) ORDERING RULE.—

24 ‘‘(i) FIRST-IN, FIRST-OUT RULE.—

25 Distributions from a special individual re-
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1 tirement account shall be treated as having

2 been made—

3 ‘‘(I) first from the earliest con4 tribution (and earnings allocable

5 thereto) remaining in the account at

6 the time of the distribution, and

7 ‘‘(II) then from other contribu8 tions (and earnings allocable thereto)

9 in the order in which made.

10 ‘‘(ii) ALLOCATIONS BETWEEN CON11 TRIBUTIONS AND EARNINGS.—Any portion

12 of a distribution allocated to a contribution

13 (and earnings allocable thereto) shall be

14 treated as allocated first to the earnings

15 and then to the contribution.

16 ‘‘(iii) ALLOCATION OF EARNINGS.—

17 Earnings shall be allocated to a contribu18 tion in such manner as the Secretary may

19 by regulations prescribe.

20 ‘‘(iv) CONTRIBUTIONS IN SAME

21 YEAR.—Except as provided in regulations,

22 all contributions made during the same

23 taxable year may be treated as 1 contribu24 tion for purposes of this subparagraph.
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1 ‘‘(C) CROSS REFERENCE.—

‘‘For additional tax for early withdrawal, see section 72(t).

2 ‘‘(3) QUALIFIED TRANSFER.—

3 ‘‘(A) IN GENERAL.—Paragraph (2) shall

4 not apply to any distribution which is trans5 ferred in a qualified transfer to another special

6 individual retirement account.

7 ‘‘(B) CONTRIBUTION PERIOD.—For pur8 poses of paragraph (2), the special individual

9 retirement account to which any contributions

10 are transferred shall be treated as having held

11 such contributions during any period such con12 tributions were held (or are treated as held

13 under this subparagraph) by the special individ14 ual retirement account from which transferred.

15 ‘‘(4) SPECIAL RULES RELATING TO CERTAIN

16 TRANSFERS.—

17 ‘‘(A) IN GENERAL.—Notwithstanding any

18 other provision of law, in the case of a qualified

19 transfer to a special individual retirement ac20 count from an individual retirement plan which

21 is not a special individual retirement account—

22 ‘‘(i) there shall be included in gross

23 income any amount which, but for the
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1 qualified transfer, would be includible in

2 gross income, but

3 ‘‘(ii) section 72(t) shall not apply to

4 such amount.

5 ‘‘(B) TIME FOR INCLUSION.—In the case

6 of any qualified transfer which occurs before

7 January 1, 1994, any amount includible in

8 gross income under subparagraph (A) with re9 spect to such contribution shall be includible

10 ratably over the 4-taxable year period beginning

11 in the taxable year in which the amount was

12 paid or distributed out of the individual retire13 ment plan.

14 ‘‘(e) QUALIFIED TRANSFER.—For purposes of this

15 section—

16 ‘‘(1) IN GENERAL.—The term ‘qualified trans17 fer’ means a transfer to a special individual retire18 ment account from another such account or from an

19 individual retirement plan but only if such transfer

20 meets the requirements of section 408(d)(3).

21 ‘‘(2) LIMITATION.—A transfer otherwise de22 scribed in paragraph (1) shall not be treated as a

23 qualified transfer if the taxpayer’s adjusted gross in24 come for the taxable year of the transfer exceeds the

25 sum of the applicable dollar amount plus $10,000.
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1 This paragraph shall not apply to a transfer from a

2 special individual retirement account to another spe3 cial individual retirement account.

4 ‘‘(3) DEFINITIONS.—For purposes of this sub5 section, the terms ‘adjusted gross income’ and ‘ap6 plicable dollar amount’ have the meanings given

7 such terms by section 219(g)(3), except subpara8 graph (A)(ii) thereof shall be applied without regard

9 to the phrase ‘or the deduction allowable under this

10 section’.’’

11 (b) EARLY WITHDRAWAL PENALTY.—Section 72(t)

12 of such Code is amended by adding at the end thereof

13 the following new paragraph:

14 ‘‘(6) RULES RELATING TO SPECIAL INDIVIDUAL

15 RETIREMENT ACCOUNTS.—In the case of a special

16 individual retirement account under section 408A—

17 ‘‘(A) this subsection shall only apply to

18 distributions out of such account which consist

19 of earnings allocable to contributions made to

20 the account during the 5-year period ending on

21 the day before such distribution, and

22 ‘‘(B) paragraph (2)(A)(i) shall not apply to

23 any distribution described in subparagraph

24 (A).’’
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1 (c) EXCESS CONTRIBUTIONS.—Section 4973(b) of

2 such Code is amended by adding at the end thereof the

3 following new sentence: ‘‘For purposes of paragraphs

4 (1)(B) and (2)(C), the amount allowable as a deduction

5 under section 219 shall be computed without regard to

6 section 408A.’’

7 (d) CONFORMING AMENDMENT.—The table of sec8 tions for subpart A of part I of subchapter D of chapter

9 1 of such Code is amended by inserting after the item

10 relating to section 408 the following new item:

‘‘Sec. 408A. Special individual retirement accounts.’’

11 (e) EFFECTIVE DATES.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section

14 shall apply to taxable years beginning after Decem15 ber 31, 1993.

16 (2) QUALIFIED TRANSFERS IN 1993.—The

17 amendments made by this section shall apply to any

18 qualified transfer during any taxable year beginning

19 in 1993.

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