II

103D CONGRESS

2D SESSION S. 2476

To amend the Internal Revenue Code of 1986 to encourage individuals to

save through individual retirement accounts, and for other purposes.

IN THE SENATE OF THE UNITED STATES

SEPTEMBER 29 (legislative day, SEPTEMBER 12), 1994

Mr. CHAFEE introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to encourage

individuals to save through individual retirement accounts, 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; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Individual Retirement Account Equity and Enhancement

6 Act of 1994’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment

10 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUC4 TION.

5 (a) SPOUSAL IRA COMPUTED ON BASIS OF COM6 PENSATION OF BOTH SPOUSES.—Subsection (c) of section

7 219 (relating to special rules for certain married individ8 uals) is amended to read as follows:

9 ‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDI10 VIDUALS.—

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

12 to whom this paragraph applies for the taxable year,

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

14 shall be equal to the lesser of—

15 ‘‘(A) $2,000, or

16 ‘‘(B) the sum of—

17 ‘‘(i) the compensation includible in

18 such individual’s gross income for the tax19 able year, plus

20 ‘‘(ii) the compensation includible in

21 the gross income of such individual’s

22 spouse for the taxable year reduced by the

23 amount allowable as a deduction under

24 subsection (a) to such spouse for such tax25 able year.
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1 ‘‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1)

2 APPLIES.—Paragraph (1) shall apply to any individ3 ual if—

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

5 the taxable year, and

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

7 includible in such individual’s gross income for

8 the taxable year is less than the compensation

9 includible in the gross income of such individ10 ual’s spouse for the taxable year.’’

11 (b) CONFORMING AMENDMENTS.—

12 (1) Paragraph (2) of section 219(f) (relating to

13 other definitions and special rules) is amended by

14 striking ‘‘subsections (b) and (c)’’ and inserting

15 ‘‘subsection (b)’’.

16 (2) Section 408(d)(5) is amended by striking

17 ‘‘$2,250’’ and inserting ‘‘$2,000’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to taxable years beginning after

20 December 31, 1994.
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1 SEC. 3. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE

2 USED WITHOUT PENALTY TO PURCHASE

3 FIRST HOMES, TO PAY HIGHER EDUCATION

4 OR QUALIFIED LONG-TERM CARE EXPENSES,

5 OR BY THE LONG-TERM UNEMPLOYED.

6 (a) IN GENERAL.—Paragraph (2) of section 72(t)

7 (relating to exceptions to 10-percent additional tax on

8 early distributions from qualified retirement plans) is

9 amended by adding at the end the following new subpara10 graph:

11 ‘‘(D) DISTRIBUTIONS FROM CERTAIN PLANS

12 FOR FIRST HOME PURCHASES OR EDUCATIONAL OR

13 LONG-TERM CARE EXPENSES.—Distributions to an

14 individual from an individual retirement plan, or

15 from amounts attributable to employer contributions

16 made pursuant to elective deferrals described in sub17 paragraph (A) or (C) of section 402(g)(3) or section

18 501(c)(18)(D)(iii)—

19 ‘‘(i) which are qualified first-time home20 buyer distributions (as defined in paragraph

21 (6)), or

22 ‘‘(ii) to the extent such distributions do not

23 exceed the sum of the qualified higher edu24 cation expenses (as defined in paragraph (7))

25 and the qualified long-term care expenses (as
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1 defined in paragraph (8)) of the taxpayer for

2 the taxable year.’’

3 (b) DEFINITIONS.—Section 72(t) is amended by add4 ing at the end the following new paragraphs:

5 ‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS6 TRIBUTIONS.—For purposes of paragraph

7 (2)(D)(i)—

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

9 first-time homebuyer distribution’ means any

10 payment or distribution received by an individ11 ual to the extent such payment or distribution

12 is used by the individual before the close of the

13 60th day after the day on which such payment

14 or distribution is received to pay qualified ac15 quisition costs with respect to a principal resi16 dence of a first-time homebuyer who is such in17 dividual, the spouse of such individual, or the

18 child or grandchild of such individual or the in19 dividual’s spouse.

20 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

21 For purposes of this paragraph, the term

22 ‘qualified acquisition costs’ means the costs of

23 acquiring, constructing, or reconstructing a res24 idence. Such term includes any usual or reason-
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1 able settlement, financing, or other closing

2 costs.

3 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

4 DEFINITIONS.—For purposes of this para5 graph—

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 section

18 408(d)(3)(A)(i) (determined by substituting

19 ‘120 days’ for ‘60 days’ in such section), except

20 that—

21 ‘‘(i) section 408(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 sec-
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1 tion 408(d)(3)(A)(i) applies to any other

2 amount.

3 ‘‘(7) QUALIFIED HIGHER EDUCATION EX4 PENSES.—For purposes of paragraph (2)(D)(ii)—

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 child (as defined in section

12 151(c)(3)) or grandchild of the taxpayer or

13 the taxpayer’s spouse,

14 at an eligible educational institution (as defined

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

16 ‘‘(B) COORDINATION WITH SAVINGS BOND

17 PROVISIONS.—The amount of qualified higher

18 education expenses for any taxable year shall be

19 reduced by any amount excludable from gross

20 income under section 135.

21 ‘‘(8) QUALIFIED LONG-TERM CARE EX22 PENSES.—For purposes of paragraph (2)(D)(ii)—

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

24 long-term care expenses’ means amounts paid

25 or incurred for qualified long-term care serv-
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1 ices, including amounts for insurance covering

2 such services.

3 ‘‘(B) QUALIFIED LONG-TERM CARE SERV4 ICES.—For purposes of subparagraph (A)—

5 ‘‘(i) IN GENERAL.—The term ‘quali6 fied long-term care services’ means nec7 essary diagnostic, preventive, therapeutic,

8 rehabilitative, and maintenance (including

9 personal care) services—

10 ‘‘(I) which are required by an in11 dividual during any period during

12 which such individual is a functionally

13 impaired individual,

14 ‘‘(II) which have as their primary

15 purpose the provision of needed assist16 ance with 1 or more activities of daily

17 living which a functionally impaired

18 individual is certified as being unable

19 to perform under clause (ii)(I), and

20 ‘‘(III) which are provided pursu21 ant to a continuing plan of care pre22 scribed by a licensed health care prac23 titioner (other than a relative of such

24 individual).
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1 ‘‘(ii) FUNCTIONALLY IMPAIRED INDI2 VIDUAL.—

3 ‘‘(I) IN GENERAL.—The term

4 ‘functionally impaired individual’

5 means any individual who is certified

6 by a licensed health care practitioner

7 (other than a relative of such individ8 ual) as being unable to perform, with9 out substantial assistance from an10 other individual (including assistance

11 involving verbal reminding, physical

12 cueing, or substantial supervision), at

13 least 3 activities of daily living de14 scribed in clause (iii).

15 ‘‘(II) SPECIAL RULE FOR HOME

16 HEALTH CARE SERVICES.—In the case

17 of services which are provided during

18 any period during which an individual

19 is residing within the individual’s

20 home (whether or not the services are

21 provided within the home), subclause

22 (I) shall be applied by substituting ‘2’

23 for ‘3’. For purposes of this

24 subclause, a nursing home or similar

25 facility shall not be treated as a home.
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1 ‘‘(iii) ACTIVITIES OF DAILY LIVING.—

2 Each of the following is an activity of daily

3 living:

4 ‘‘(I) Eating.

5 ‘‘(II) Transferring.

6 ‘‘(III) Toileting.

7 ‘‘(IV) Dressing.

8 ‘‘(V) Bathing.

9 ‘‘(C) LICENSED HEALTH CARE PRACTI10 TIONER.—For purposes of subparagraph (B)—

11 ‘‘(i) IN GENERAL.—The term ‘licensed

12 health care practitioner’ means—

13 ‘‘(I) a physician or registered

14 professional nurse,

15 ‘‘(II) a qualified community care

16 case manager (as defined in clause

17 (ii)), or

18 ‘‘(III) any other individual who

19 meets such requirements as may be

20 prescribed by the Secretary after con21 sultation with the Secretary of Health

22 and Human Services.

23 ‘‘(ii) QUALIFIED COMMUNITY CARE

24 CASE MANAGER.—The term ‘qualified com-
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1 munity care case manager’ means an indi2 vidual or entity which—

3 ‘‘(I) has experience or has been

4 trained in providing case management

5 services and in preparing individual

6 care plans;

7 ‘‘(II) has experience in assessing

8 individuals to determine their func9 tional and cognitive impairment;

10 ‘‘(III) is not a relative of the in11 dividual receiving case management

12 services; and

13 ‘‘(IV) meets such requirements

14 as may be prescribed by the Secretary

15 after consultation with the Secretary

16 of Health and Human Services.

17 ‘‘(D) RELATIVE.—For purposes of this

18 paragraph, the term ‘relative’ means an individ19 ual bearing a relationship to another individual

20 which is described in paragraphs (1) through

21 (8) of section 152(a).’’

22 (c) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN

23 UNEMPLOYED INDIVIDUALS.—Paragraph (2) of section

24 72(t) is amended by adding at the end the following new

25 subparagraph:
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1 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN2 DIVIDUALS.—A distribution from an individual

3 retirement plan to an individual after separa4 tion from employment, if—

5 ‘‘(i) such individual has received un6 employment compensation for 12 consecu7 tive weeks under any Federal or State un8 employment compensation law by reason of

9 such separation, and

10 ‘‘(ii) such distributions are made dur11 ing any taxable year during which such un12 employment compensation is paid or the

13 succeeding taxable year.’’

14 (d) CONFORMING AMENDMENTS.—

15 (1) Section 401(k)(2)(B)(i) is amended by

16 striking ‘‘or’’ at the end of subclause (III), by strik17 ing ‘‘and’’ at the end of subclause (IV) and inserting

18 ‘‘or’’, and by inserting after subclause (IV) the fol19 lowing new subclause:

20 ‘‘(V) the date on which qualified

21 first-time homebuyer distributions (as

22 defined in section 72(t)(6)), or dis23 tributions for qualified higher edu24 cation expenses (as defined in section

25 72(t)(7)), or for qualified long-term
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1 care expenses (as defined in section

2 72(t)(18)), are made, and’’.

3 (2) Section 403(b)(11) is amended by striking

4 ‘‘or’’ at the end of subparagraph (A), by striking the

5 period at the end of subparagraph (B) and inserting

6 ‘‘, or’’, and by inserting after subparagraph (B) the

7 following new subparagraph:

8 ‘‘(C) for qualified first-time homebuyer dis9 tributions (as defined in section 72(t)(6)) or for

10 the payment of qualified higher education ex11 penses (as defined in section 72(t)(7)) or quali12 fied long-term care expenses (as defined in sec13 tion 72(t)(8)).’’

14 (e) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to payments and distributions after

16 the date of the enactment of this Act.

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