II

105TH CONGRESS

1ST SESSION S. 197

To amend the Internal Revenue Code of 1986 to encourage savings and

investment through individual retirement accounts, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JANUARY 22, 1997

Mr. ROTH (for himself, Mr. LOTT, Mr. BREAUX, Mr. GRASSLEY, Mr. NICKLES, Mr. MURKOWSKI, Mr. ABRAHAM, Mr. KYL, Mr. HELMS, Mr.

D’AMATO, Mr. CRAIG, Mrs. HUTCHISON, Mr. MCCONNELL, Mr. THOMAS,

Mr. SMITH of Oregon, Mr. DEWINE, Mr. INHOFE, Mr. BRYAN, Mr. ROBERTS, Ms. MIKULSKI, Mr. SMITH of New Hampshire, Mr. HATCH, Mr.

BENNETT, Mr. KEMPTHORNE, Mr. INOUYE, Mr. ENZI, Mr. FORD, Mr.

BURNS, Mr. LIEBERMAN, Mr. HAGEL, Mr. GRAMM, Mr. DODD, Ms. COLLINS, Mr. GREGG, Mr. GRAMS, Mr. BOND, and Mr. KOHL) 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

savings and investment 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 ‘‘Savings and Investment Incentive Act of 1997’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

4 to, or repeal of, a section or other provision, the reference

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

7 TITLE I—RETIREMENT SAVINGS

8 INCENTIVES

9 Subtitle A—Restoration of IRA

10 Deduction

11 SEC. 101. RESTORATION OF IRA DEDUCTION.

12 (a) MODIFICATIONS OF RESTRICTIONS ON ACTIVE

13 PARTICIPANTS.—

14 (1) INCREASE IN INCOME LIMITS APPLICABLE

15 TO ACTIVE PARTICIPANTS.—Subparagraph (B) of

16 section 219(g)(3) (relating to applicable dollar

17 amount) is amended to read as follows:

18 ‘‘(B) APPLICABLE DOLLAR AMOUNT.—The

19 term ‘applicable dollar amount’ means the

20 following:

21 ‘‘(i) In the case of a taxpayer filing a

22 joint return:

The applicable

‘‘For taxable years beginning in: dollar amount is:

1997 ......................................................................................... $65,000

1998 ......................................................................................... $90,000

1999 ......................................................................................... $115,000

2000 ......................................................................................... $140,000.
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1 ‘‘(ii) In the case of any other taxpayer

2 (other than a married individual filing a

3 separate return):

The applicable

‘‘For taxable years beginning in: dollar amount is:

1997 ......................................................................................... $50,000

1998 ......................................................................................... $75,000

1999 ......................................................................................... $100,000

2000 ......................................................................................... $125,000.

4 ‘‘(iii) In the case of a married individ5 ual filing a separate return, zero.’’.

6 (2) LIMITATIONS FOR ACTIVE PARTICIPATION

7 NOT BASED ON SPOUSE’S PARTICIPATION.—Para8 graph (1) of section 219(g) (relating to limitation on

9 deduction for active participants in certain pension

10 plans) is amended by striking ‘‘or the individual’s

11 spouse’’.

12 (b) REPEAL OF RESTRICTIONS ON ACTIVE

13 PARTICIPANTS.—

14 (1) IN GENERAL.—Section 219 (relating to de15 duction for retirement savings), as amended by sec16 tion 102, is amended by striking subsection (g) and

17 by redesignating subsections (h) and (i) as sub18 section (g) and (h), respectively.

19 (2) TECHNICAL AND CONFORMING AMEND20 MENTS.—

21 (A) Subsection (f) of section 219 is amend22 ed by striking paragraph (7).
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1 (B) Paragraph (5) of section 408(d) is

2 amended by striking the last sentence.

3 (C) Section 408(o) is amended by adding

4 at the end the following new paragraph:

5 ‘‘(5) TERMINATION.—This subsection shall not

6 apply to any designated nondeductible contribution

7 for any taxable year beginning after December 31,

8 2000.’’.

9 (D) Sections 408A(c)(2)(A) and

10 4973(b)(2)(B)(ii), as added by section 111, are

11 each amended by striking ‘‘(computed without

12 regard to subsection (g) of such section)’’.

13 (c) EFFECTIVE DATES.—

14 (1) IN GENERAL.—The amendments made by

15 subsection (a) shall apply to taxable years beginning

16 after December 31, 1996.

17 (2) TERMINATION.—The amendments made by

18 subsection (b) shall apply to taxable years beginning

19 after December 31, 2000.

20 SEC. 102. INFLATION ADJUSTMENT FOR DEDUCTIBLE

21 AMOUNT.

22 (a) IN GENERAL.—Section 219 is amended by redes23 ignating subsection (h) as subsection (i) and by inserting

24 after subsection (g) the following new subsection:
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1 ‘‘(h) COST-OF-LIVING ADJUSTMENTS.—In the case

2 of any taxable year beginning in a calendar year after

3 1997, the $2,000 amount under subsection (b)(1)(A) shall

4 be increased by an amount equal to the product of $2,000

5 and the cost-of-living adjustment determined under sec6 tion 1(f)(3) for the calendar year in which the taxable year

7 begins, except that subparagraph (B) thereof shall be ap8 plied by substituting ‘1996’ for ‘1992’. If the amount to

9 which $2,000 would be increased under the preceding sen10 tence is not a multiple of $500, such amount shall be

11 rounded to the next lower multiple of $500.’’

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 408(a)(1) is amended by striking

14 ‘‘in excess of $2,000 on behalf of any individual’’

15 and inserting ‘‘on behalf of any individual in excess

16 of the amount in effect for such taxable year under

17 section 219(b)(1)(A)’’.

18 (2) Section 408(b)(2)(B) is amended by strik19 ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in

20 effect under section 219(b)(1)(A)’’.

21 (3) Section 408(j) is amended by striking

22 ‘‘$2,000’’.
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1 SEC. 103. CERTAIN COINS AND BULLION NOT TREATED AS

2 COLLECTIBLES.

3 (a) IN GENERAL.—Paragraph (3) of section 408(m)

4 (relating to exception for certain coins) is amended to read

5 as follows:

6 ‘‘(3) EXCEPTION FOR CERTAIN COINS AND BUL7 LION.—For purposes of this subsection, the term

8 ‘collectible’ shall not include—

9 ‘‘(A) any coin certified by a recognized

10 grading service and traded on a nationally rec11 ognized electronic network, or listed by a recog12 nized wholesale reporting service, and—

13 ‘‘(i) which is or was at any time legal

14 tender in the country of issuance, or

15 ‘‘(ii) issued under the laws of any

16 State, and

17 ‘‘(B) any gold, silver, platinum, or palla18 dium bullion (whether fabricated in the form of

19 a coin or otherwise) of a fineness equal to or

20 exceeding the minimum fineness required for

21 metals which may be delivered in satisfaction of

22 a regulated futures contract subject to regula23 tion by the Commodity Futures Trading Com24 mission under the Commodity Exchange Act,
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1 if such coin or bullion is in the physical possession

2 of a trustee described under subsection (a) of this

3 section.’’

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

5 this section shall apply to taxable years beginning after

6 December 31, 1996.

7 Subtitle B—Nondeductible Tax8 Free IRAs

9 SEC. 111. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE

10 INDIVIDUAL RETIREMENT ACCOUNTS.

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

12 D of chapter 1 (relating to pension, profit-sharing, stock

13 bonus plans, etc.) is amended by inserting after section

14 408 the following new section:

15 ‘‘SEC. 408A. IRA PLUS ACCOUNTS.

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

17 section, an IRA Plus account shall be treated for purposes

18 of this title in the same manner as an individual retire19 ment plan.

20 ‘‘(b) IRA PLUS ACCOUNT.—For purposes of this

21 title, the term ‘IRA Plus account’ means an individual re22 tirement plan (as defined in section 7701(a)(37)) which

23 is designated (in such manner as the Secretary may pre24 scribe) at the time of establishment of the plan as an IRA

25 Plus account.
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1 ‘‘(c) TREATMENT OF CONTRIBUTIONS.—

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

3 shall be allowed under section 219 for a contribution

4 to an IRA Plus account.

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

6 amount of contributions for any taxable year to all

7 IRA Plus accounts maintained for the benefit of an

8 individual shall not exceed the excess (if any) of—

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

10 deduction under section 219 with respect to

11 such individual for such taxable year (computed

12 without regard to subsection (g) of such sec13 tion), over

14 ‘‘(B) the amount so allowed.

15 ‘‘(3) CONTRIBUTIONS PERMITTED AFTER AGE

701 16 ⁄2.—Contributions to an IRA Plus account may be

17 made even after the individual for whom the account

is maintained has attained age 701 18 ⁄2.

19 ‘‘(4) MANDATORY DISTRIBUTION RULES NOT

20 TO APPLY, ETC.—

21 ‘‘(A) IN GENERAL.—Except as provided in

22 subparagraph (B), subsections (a)(6) and (b)(3)

23 of section 408 (relating to required distribu24 tions) and section 4974 (relating to excise tax
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1 on certain accumulations in qualified retirement

2 plans) shall not apply to any IRA Plus account.

3 ‘‘(B) POST-DEATH DISTRIBUTIONS.—Rules

4 similar to the rules of section 401(a)(9) (other

5 than subparagraph (A) thereof) shall apply for

6 purposes of this section.

7 ‘‘(5) ROLLOVER CONTRIBUTIONS.—

8 ‘‘(A) IN GENERAL.—No rollover contribu9 tion may be made to an IRA Plus account un10 less it is a qualified rollover contribution.

11 ‘‘(B) COORDINATION WITH LIMIT.—A

12 qualified rollover contribution shall not be taken

13 into account for purposes of paragraph (2).

14 ‘‘(6) TIME WHEN CONTRIBUTIONS MADE.—For

15 purposes of this section, the rule of section 219(f)(3)

16 shall apply.

17 ‘‘(d) DISTRIBUTION RULES.—For purposes of this

18 title—

19 ‘‘(1) GENERAL RULES.—

20 ‘‘(A) EXCLUSIONS FROM GROSS INCOME.—

21 Any qualified distribution from an IRA Plus ac22 count shall not be includible in gross income.

23 ‘‘(B) NONQUALIFIED DISTRIBUTIONS.—In

24 applying section 72 to any distribution from an
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1 IRA Plus account which is not a qualified dis2 tribution, such distribution shall be treated as

3 made from contributions to the IRA Plus ac4 count to the extent that such distribution, when

5 added to all previous distributions from the

6 IRA Plus account, does not exceed the aggre7 gate amount of contributions to the IRA Plus

8 account. For purposes of the preceding sen9 tence, all IRA Plus accounts maintained for the

10 benefit of an individual shall be treated as 1

11 account.

12 ‘‘(C) EXCEPTION FROM PENALTY TAX.—

13 Section 72(t) shall not apply to any qualified

14 distribution from an IRA Plus account.

15 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes

16 of this subsection—

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

18 distribution’ means any payment or

19 distribution—

20 ‘‘(i) made on or after the date on

which the individual attains age 591 21 ⁄2,

22 ‘‘(ii) made to a beneficiary (or to the

23 estate of the individual) on or after the

24 death of the individual,
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1 ‘‘(iii) attributable to the individual’s

2 being disabled (within the meaning of sec3 tion 72(m)(7)), or

4 ‘‘(iv) which is a qualified special pur5 pose distribution.

6 ‘‘(B) CERTAIN DISTRIBUTIONS WITHIN 5

7 YEARS.—A payment or distribution shall not be

8 treated as a qualified distribution under clause

9 (i) of subparagraph (A) if—

10 ‘‘(i) it is made within the 5-taxable

11 year period beginning with the 1st taxable

12 year for which the individual made a con13 tribution to an IRA Plus account (or such

14 individual’s spouse made a contribution to

15 an IRA Plus account) established for such

16 individual, or

17 ‘‘(ii) in the case of a payment or dis18 tribution properly allocable (as determined

19 in the manner prescribed by the Secretary)

20 to a qualified rollover contribution (or in21 come allocable thereto), it is made within

22 the 5-taxable year period beginning with

23 the taxable year in which the rollover con24 tribution was made.
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1 Clause (ii) shall not apply to a qualified rollover

2 contribution from an IRA plus account.

3 ‘‘(3) ROLLOVERS.—

4 ‘‘(A) IN GENERAL.—Paragraph (1) shall

5 not apply to any distribution which is trans6 ferred in a qualified rollover contribution to an

7 IRA Plus account.

8 ‘‘(B) INCOME INCLUSION FOR ROLLOVERS

9 FROM NON-PLUS IRAS.—In the case of any

10 qualified rollover contribution from an individ11 ual retirement plan (other than an IRA Plus

12 account) to an IRA Plus account established for

13 the benefit of the payee or distributee, as the

14 case may be—

15 ‘‘(i) sections 72(t) and 408(d)(3) shall

16 not apply, and

17 ‘‘(ii) in any case where such contribu18 tion is made before January 1, 1999, any

19 amount required to be included in gross in20 come by reason of this paragraph shall be

21 so included ratably over the 4-taxable year

22 period beginning with the taxable year in

23 which the payment or distribution is made.

24 ‘‘(C) ADDITIONAL REPORTING REQUIRE25 MENTS.—The Secretary shall require that
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1 trustees of IRA Plus accounts, trustees of indi2 vidual retirement plans, or both, whichever is

3 appropriate, shall include such additional infor4 mation in reports required under section 408(i)

5 as is necessary to ensure that amounts required

6 to be included in gross income under subpara7 graph (B) are so included.

8 ‘‘(4) QUALIFIED SPECIAL PURPOSE DISTRIBU9 TION.—For purposes of this section, the term ‘quali10 fied special purpose distribution’ means any distribu11 tion to which subparagraph (B), (D), or (E) of sec12 tion 72(t)(2) applies.

13 ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For

14 purposes of this section—

15 ‘‘(1) IN GENERAL.—The term ‘qualified rollover

16 contribution’ means a rollover contribution to an

17 IRA Plus account from another such account, or

18 from an individual retirement plan, but only if such

19 rollover contribution meets the requirements of sec20 tion 408(d)(3). For purposes of section

21 408(d)(3)(B), there shall be disregarded any quali22 fied rollover contribution from an individual retire23 ment plan to an IRA Plus account.

24 ‘‘(2) CONVERSIONS.—The conversion of an indi25 vidual retirement plan to an IRA Plus account shall
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1 be treated as if it were a qualified rollover

2 contribution.’’

3 (b) EXCESS DISTRIBUTIONS TAX NOT TO APPLY.—

4 (1) Subparagraph (A) of section 4980A(d)(3) is

5 amended by inserting ‘‘(other than IRA Plus ac6 counts described in section 408A(b))’’ after ‘‘retire7 ment plans’’.

8 (2) Section 4980A(e)(1) is amended by adding

9 at the end the following flush sentence:

10 ‘‘Such term shall not include any amount distributed

11 from an IRA Plus account or any qualified rollover

12 contribution (as defined in section 408A(e)) from an

13 individual retirement plan to an IRA Plus account.’’

14 (c) EXCESS CONTRIBUTIONS.—Section 4973(b) is

15 amended to read as follows:

16 ‘‘(b) EXCESS CONTRIBUTIONS.—For purposes of this

17 section—

18 ‘‘(1) IN GENERAL.—In the case of individual re19 tirement accounts or individual retirement annuities,

20 the term ‘excess contributions’ means the sum of—

21 ‘‘(A) the amount determined under para22 graph (2) for the taxable year, plus

23 ‘‘(B) the carryover amount determined

24 under paragraph (3) for the taxable year.
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1 ‘‘(2) CURRENT YEAR.—The amount determined

2 under this paragraph for any taxable year is an

3 amount equal to the sum of—

4 ‘‘(A) the excess (if any) of—

5 ‘‘(i) the amount contributed for the

6 taxable year to the accounts or for the an7 nuities or bonds (other than IRA Plus ac8 counts), over

9 ‘‘(ii) the amount allowable as a deduc10 tion under section 219 for the taxable

11 year, plus

12 ‘‘(B) the excess (if any) of—

13 ‘‘(i) the amount described in clause (i)

14 (taking into account contributions to IRA

15 Plus accounts) contributed for the taxable

16 year, over

17 ‘‘(ii) the amount allowable as a deduc18 tion under section 219 for the taxable year

19 (computed without regard to subsection (g)

20 of such section).

21 ‘‘(3) CARRYOVER AMOUNT.—The carryover

22 amount determined under this paragraph for any

23 taxable year is the amount determined under para24 graph (2) for the preceding taxable year, reduced by

25 the sum of—
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1 ‘‘(A) the distributions out of the account

2 for the taxable year which were included in the

3 gross income of the payee under section

4 408(d)(1),

5 ‘‘(B) the distributions out of the account

6 for the taxable year to which section 408(d)(5)

7 applies, and

8 ‘‘(C) the excess (if any) of the amount de9 termined under paragraph (2)(B)(ii) over the

10 amount determined under paragraph (2)(B)(i).

11 ‘‘(4) SPECIAL RULES.—For purposes of this

12 subsection—

13 ‘‘(A) ROLLOVER CONTRIBUTIONS.—Roll14 over distributions described in sections 402(c),

15 403(a)(4), 403(b)(8), 408(d)(3), and 408A(e)

16 shall not be taken into account.

17 ‘‘(B) CONTRIBUTIONS RETURNED BEFORE

18 DUE DATE.—Any contribution which is distrib19 uted from an individual retirement plan in a

20 distribution to which section 408(d)(4) applies

21 shall not be taken into account.

22 ‘‘(C) EXCESS CONTRIBUTIONS TREATED AS

23 CONTRIBUTIONS.—In applying paragraph
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1 (3)(C), the determination as to amounts con2 tributed for a taxable year shall be made with3 out regard to section 219(f)(6).’’

4 (d) SPOUSAL IRA.—Clause (ii) of section

5 219(c)(1)(B) is amended to read as follows:

6 ‘‘(ii) the compensation includible in

7 the gross income of such individual’s

8 spouse for the taxable year reduced by—

9 ‘‘(I) the amount allowed as a de10 duction under subsection (a) to such

11 spouse for such taxable year, and

12 ‘‘(II) the amount of any contribu13 tion on behalf of such spouse to an

14 IRA Plus account under section 408A

15 for such taxable year.’’

16 (e) CONFORMING AMENDMENT.—The table of sec17 tions for subpart A of part I of subchapter D of chapter

18 1 is amended by inserting after the item relating to section

19 408 the following new item:

‘‘Sec. 408A. IRA Plus accounts.’’

20 (f) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to taxable years beginning after

22 December 31, 1996.
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1 TITLE II—PENALTY-FREE

2 DISTRIBUTIONS

3 SEC. 201. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE

4 USED WITHOUT PENALTY TO PURCHASE

5 FIRST HOMES, TO PAY HIGHER EDUCATION

6 EXPENSES, WHEN UNEMPLOYED, OR TO PAY

7 MEDICAL EXPENSES OF RELATIVES.

8 (a) FIRST HOMES AND EDUCATION.—

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

10 72(t) (relating to exceptions to 10-percent additional

11 tax on early distributions from qualified retirement

12 plans) is amended by adding at the end the following

13 new subparagraph:

14 ‘‘(E) DISTRIBUTIONS FROM CERTAIN

15 PLANS FOR FIRST HOME PURCHASES OR EDU16 CATIONAL EXPENSES.—Distributions to an in17 dividual from an individual retirement plan, or

18 from amounts attributable to employer con19 tributions made pursuant to elective deferrals

20 described in subparagraph (A) or (C) of section

21 402(g)(3) or section 501(c)(18)(D)(iii)—

22 ‘‘(i) which are qualified first-time

23 homebuyer distributions (as defined in

24 paragraph (7)), or
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1 ‘‘(ii) to the extent such distributions

2 do not exceed the qualified higher edu3 cation expenses (as defined in paragraph

4 (8)) of the taxpayer for the taxable year.’’

5 (2) DEFINITIONS.—Section 72(t) is amended

6 by adding at the end the following new paragraphs:

7 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS8 TRIBUTIONS.—For purposes of paragraph

9 (2)(E)(i)—

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

11 first-time homebuyer distribution’ means any

12 payment or distribution received by an individ13 ual to the extent such payment or distribution

14 is used by the individual before the close of the

15 60th day after the day on which such payment

16 or distribution is received to pay qualified ac17 quisition costs with respect to a principal resi18 dence of a first-time homebuyer who is such in19 dividual, the spouse of such individual, or any

20 child, grandchild, or ancestor of such individual

21 or the individual’s spouse.

22 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

23 For purposes of this paragraph, the term

24 ‘qualified acquisition costs’ means the costs of
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1 acquiring, constructing, or reconstructing a res2 idence. Such term includes any usual or reason3 able settlement, financing, or other closing

4 costs.

5 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

6 DEFINITIONS.—For purposes of this para7 graph—

8 ‘‘(i) FIRST-TIME HOMEBUYER.—The

9 term ‘first-time homebuyer’ means any in10 dividual if—

11 ‘‘(I) such individual (and if mar12 ried, such individual’s spouse) had no

13 present ownership interest in a prin14 cipal residence during the 2-year pe15 riod ending on the date of acquisition

16 of the principal residence to which

17 this paragraph applies, and

18 ‘‘(II) subsection (h) or (k) of sec19 tion 1034 did not suspend the run20 ning of any period of time specified in

21 section 1034 with respect to such in22 dividual on the day before the date

23 the distribution is applied pursuant to

24 subparagraph (A).
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1 ‘‘(ii) PRINCIPAL RESIDENCE.—The

2 term ‘principal residence’ has the same

3 meaning as when used in section 1034.

4 ‘‘(iii) DATE OF ACQUISITION.—The

5 term ‘date of acquisition’ means the date—

6 ‘‘(I) on which a binding contract

7 to acquire the principal residence to

8 which subparagraph (A) applies is en9 tered into, or

10 ‘‘(II) on which construction or re11 construction of such a principal resi12 dence is commenced.

13 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC14 QUISITION.—If any distribution from any indi15 vidual retirement plan fails to meet the require16 ments of subparagraph (A) solely by reason of

17 a delay or cancellation of the purchase or con18 struction of the residence, the amount of the

19 distribution may be contributed to an individual

20 retirement plan as provided in section

21 408(d)(3)(A)(i) (determined by substituting

22 ‘120 days’ for ‘60 days’ in such section), except

23 that—

24 ‘‘(i) section 408(d)(3)(B) shall not be

25 applied to such contribution, and
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1 ‘‘(ii) such amount shall not be taken

2 into account in determining whether sec3 tion 408(d)(3)(A)(i) applies to any other

4 amount.

5 ‘‘(8) QUALIFIED HIGHER EDUCATION EX6 PENSES.—For purposes of paragraph (2)(E)(ii)—

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) any child (as defined in section

14 151(c)(3)), grandchild, or ancestor of the

15 taxpayer or the taxpayer’s spouse,

16 at an eligible educational institution (as defined

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

18 ‘‘(B) COORDINATION WITH SAVINGS BOND

19 PROVISIONS.—The amount of qualified higher

20 education expenses for any taxable year shall be

21 reduced by any amount excludable from gross

22 income under section 135.’’

23 (3) CONFORMING AMENDMENT.—Subparagraph

24 (B) of section 72(t)(2) is amended by striking ‘‘or

25 (D)’’ and inserting ‘‘, (D), or (E)’’.
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1 (b) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN

2 UNEMPLOYED INDIVIDUALS.—Subparagraph (D) of sec3 tion 72(t)(2) is amended—

4 (1) in clause (i), by inserting ‘‘and’’ at the end

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

6 subclause (II) and inserting a period, and by strik7 ing subclause (III), and

8 (2) by striking ‘‘FOR HEALTH INSURANCE PRE9 MIUMS’’ in the heading thereof.

10 (c) TREATMENT OF CERTAIN FAMILY MEMBERS AS

11 DEPENDENTS FOR PURPOSES OF MEDICAL DISTRIBU12 TIONS.—Subparagraph (B) of section 72(t)(2) is amended

13 by striking ‘‘medical care’’ and all that follows and insert14 ing ‘‘medical care determined—

15 ‘‘(i) without regard to whether the

16 employee itemizes deductions for such tax17 able year, and

18 ‘‘(ii) by treating such employee’s de19 pendents as including—

20 ‘‘(I) all children and grand21 children of the employee or such em22 ployee’s spouse, and

23 ‘‘(II) all ancestors of the em24 ployee or such employee’s spouse.’’.

25 (d) CONFORMING AMENDMENTS.—
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1 (1) Section 401(k)(2)(B)(i) is amended by

2 striking ‘‘or’’ at the end of subclause (III), by strik3 ing ‘‘and’’ at the end of subclause (IV) and inserting

4 ‘‘or’’, and by inserting after subclause (IV) the fol5 lowing new subclause:

6 ‘‘(V) the date on which qualified

7 first-time homebuyer distributions (as

8 defined in section 72(t)(7)) or dis9 tributions for qualified higher edu10 cation expenses (as defined in section

11 72(t)(8)) are made, and’’.

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

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

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

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

16 following new subparagraph:

17 ‘‘(C) for qualified first-time homebuyer dis18 tributions (as defined in section 72(t)(7)) or for

19 the payment of qualified higher education ex20 penses (as defined in section 72(t)(8)).’’

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

22 this section shall apply to payments and distributions after

23 the date of the enactment of this Act.

Æ