I 

109TH CONGRESS 

1ST SESSION H. R. 2063

To amend the Internal Revenue Code of 1986 to permit one-time, taxfree distributions from retirement plans to fund health savings accounts. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 3, 2005

Mr. SHUSTER 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 

one-time, tax-free distributions from retirement plans to 

fund health savings 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. ONE-TIME DISTRIBUTION FROM RETIREMENT 

4 PLANS TO FUND HEALTH SAVINGS AC5 COUNTS. 

6 (a) IN GENERAL.—Section 402 of the Internal Rev7 enue Code of 1986 (relating to taxability of beneficiary 

8 of employees’ trust) is amended by adding at the end the 

9 following new subsection: 

10 ‘‘(l) HSA FUNDING DISTRIBUTION.—
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1 ‘‘(1) IN GENERAL.—In the case of an employee 

2 who is an eligible individual and who elects the ap3 plication of this subsection for a taxable year, gross 

4 income of the employee for the taxable year does not 

5 include a qualified HSA funding distribution. 

6 ‘‘(2) QUALIFIED HSA FUNDING DISTRIBU7 TION.—For purposes of this subsection, the term 

8 ‘qualified HSA funding distribution’ means a dis9 tribution from an eligible retirement plan of the em10 ployee to the extent that such distribution is contrib11 uted to the health savings account of the employee 

12 not later than the 60th day after the day on which 

13 the employee receives such distribution or in a direct 

14 trustee-to-trustee transfer. 

15 ‘‘(3) LIMITATION.—

16 ‘‘(A) MAXIMUM DOLLAR LIMITATIONS

17 BASED ON COVERAGE IN EFFECT AT TIME OF

18 CONTRIBUTION.—The amount excluded from 

19 gross income by paragraph (1) shall not ex20 ceed—

21 ‘‘(i) in the case of an individual who 

22 has self-only coverage under a high deduct23 ible health plan as of the first day of the 

24 month in which the qualified HSA funding 

25 distribution is contributed to the health 
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1 savings account of the employee, the lesser 

2 of—

3 ‘‘(I) the amount specified under 

4 clause (i) of section 223(b)(2)(A), or 

5 ‘‘(II) the amount in effect for the 

6 taxable year under clause (ii) of sec7 tion 223(b)(2)(A) (determined without 

8 regard to paragraphs (3) and (4)(C) 

9 of section 223(b)), reduced by any 

10 amount contributed to such account 

11 for such taxable year before the date 

12 of the qualified HSA funding distribu13 tion contribution, and 

14 ‘‘(ii) in the case of an individual who 

15 has family coverage under a high deduct16 ible health plan as of the first day of the 

17 month in which the qualified HSA funding 

18 distribution is contributed to the health 

19 savings account of the employee, the lesser 

20 of—

21 ‘‘(I) the amount specified under 

22 clause (i) of section 223(b)(2)(B), or 

23 ‘‘(II) the amount in effect for the 

24 taxable year under clause (ii) of sec25 tion 223(b)(2)(B) (determined with-
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1 out regard to paragraphs (3) and 

2 (4)(C) of section 223(b)), reduced by 

3 any amount contributed to such ac4 count for such taxable year before the 

5 date of the qualified HSA funding dis6 tribution contribution. 

7 ‘‘(B) ONE-TIME TRANSFER.—The election 

8 under paragraph (1) shall apply to the taxable 

9 year for which made and all subsequent taxable 

10 years. Such an election, once made, shall be ir11 revocable. 

12 ‘‘(4) DISTRIBUTIONS MUST OTHERWISE BE IN13 CLUDIBLE.—

14 ‘‘(A) IN GENERAL.—An amount shall be 

15 treated as a distribution for purposes of para16 graph (1) only to the extent that such amount 

17 would be includible in gross income without re18 gard to paragraph (1). 

19 ‘‘(B) APPLICATION OF SECTION 72.—Not20 withstanding section 72, in determining the ex21 tent to which an amount is treated as a dis22 tribution for purposes of subparagraph (A), the 

23 aggregate amounts distributed from an eligible 

24 retirement plan in a taxable year shall be treat25 ed as includible in gross income (without regard 
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1 to subparagraph (A)) to the extent that such 

2 amount does not exceed the aggregate amount 

3 which would have been so includible if all 

4 amounts distributed from all eligible retirement 

5 plans were treated as 1 contract for purposes of 

6 determining the inclusion of such distribution 

7 under section 72. Proper adjustments shall be 

8 made in applying section 72 to other distribu9 tions in such taxable year and subsequent tax10 able years. 

11 ‘‘(5) DEFINITIONS.—For purposes of this sub12 section—

13 ‘‘(A) ELIGIBLE RETIREMENT PLAN.—The 

14 term ‘eligible retirement plan’ has the meaning 

15 given such term by subsection (c)(8)(B), except 

16 that such term shall also include an eligible de17 ferred compensation plan maintained by an eli18 gible employer described in section 

19 457(e)(1)(B). 

20 ‘‘(B) ELIGIBLE INDIVIDUAL.—The term 

21 ‘eligible individual’ has the meaning given such 

22 term by section 223(c)(1). 

23 ‘‘(6) SPECIAL RULES.—For purposes of this 

24 subsection—
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1 ‘‘(A) RELATED PLANS TREATED AS 1.—All 

2 eligible retirement plans of an employer shall be 

3 treated as a single plan. 

4 ‘‘(B) SURVIVING SPOUSES, DEPENDENTS, 

5 AND ALTERNATE PAYEES.—With respect to an 

6 eligible retirement plan of an employer, a sur7 viving spouse, a dependent of the surviving 

8 spouse, or alternate payee (as defined in section 

9 414(p)(8)) of a former employee shall be treat10 ed in the same manner as the former em11 ployee.’’. 

12 (b) COORDINATION WITH LIMITATION ON CON13 TRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—Section 

14 223(b)(4) of such Code (relating to coordination with 

15 other contributions) is amended by striking ‘‘and’’ at the 

16 end of subparagraph (A), by striking the period at the 

17 end of subparagraph (B) and inserting ‘‘, and’’, and by 

18 inserting after subparagraph (B) the following new sub19 paragraph: 

20 ‘‘(C) the aggregate amount contributed to 

21 health savings accounts of such individual for 

22 such taxable year under section 402(l) (and 

23 such amount shall not be allowed as a deduc24 tion under subsection (a)).’’. 
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1 (c) 10-PERCENT PENALTY ON EARLY DISTRIBU2 TIONS NOT TO APPLY.—Section 72(t)(2)(A) of such Code 

3 (relating to subsection not to apply to certain distribu4 tions) is amended by striking ‘‘or’’ at the end of clause 

5 (vi), by striking the period at the end of clause (vii) and 

6 inserting ‘‘, or’’, and by inserting after clause (vii) the fol7 lowing new clause: 

8 ‘‘(viii) a qualified HSA funding dis9 tribution (as defined by section 402(l)).’’. 

10 (d) CONFORMING AMENDMENTS.—

11 (1) Section 401(k)(2)(B)(i) of such Code (relat12 ing to cash or deferred arrangements) is amended by 

13 striking ‘‘or’’ at the end of subclause (III), by strik14 ing ‘‘and’’ at the end of subclause (IV) and inserting 

15 ‘‘or’’, and by inserting after subclause (IV) the fol16 lowing new subclause: 

17 ‘‘(V) the funding of a health sav18 ings account under section 402(l), 

19 and’’. 

20 (2) Section 402(c)(4) of such Code (relating to 

21 rules applicable to rollovers from exempt trusts) is 

22 amended by striking ‘‘and’’ at the end of subpara23 graph (B), by striking the period at the end of sub24 paragraph (C) and inserting ‘‘, and’’, and by insert-
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1 ing after subparagraph (C) the following new sub2 paragraph: 

3 ‘‘(D) any qualified HSA funding distribu4 tion (as defined by subsection (l)).’’. 

5 (3) Section 403(a) of such Code (relating to 

6 taxability of beneficiary under a qualified annuity 

7 plan) is amended by inserting after paragraph (1) 

8 the following new paragraph: 

9 ‘‘(2) SPECIAL RULE FOR QUALIFIED HSA FUND10 ING DISTRIBUTION.—To the extent provided in sec11 tion 402(l), paragraph (1) shall not apply to the 

12 amount distributed under the contract which is oth13 erwise includible in gross income under this sub14 section.’’. 

15 (4) Section 403(b) of such Code (relating to 

16 taxability of beneficiary under annuity purchased by 

17 section 501(c)(3) organization or public school) is 

18 amended by inserting after paragraph (1) the fol19 lowing new paragraph: 

20 ‘‘(2) SPECIAL RULE FOR QUALIFIED HSA FUND21 ING DISTRIBUTION.—To the extent provided in sec22 tion 402(l), paragraph (1) shall not apply to the 

23 amount distributed under the contract which is oth24 erwise includible in gross income under this sub25 section.’’. 
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1 (5) Section 457(a) of such Code (relating to 

2 year of inclusion in gross income) is amended by 

3 adding at the end the following new paragraph: 

4 ‘‘(3) SPECIAL RULE FOR QUALIFIED HSA FUND5 ING DISTRIBUTION.—To the extent provided in sec6 tion 402(l), paragraph (1) shall not apply to 

7 amounts otherwise includible in gross income under 

8 this subsection.’’. 

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

10 this section shall apply to distributions in taxable years 

11 beginning after December 31, 2004.

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