I

105TH CONGRESS

1ST SESSION H. R. 891

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

amount of contributions to individual retirement accounts and the

amounts of adjusted gross income at which the IRA deduction phases

out for active participants in pension plans, and to allow penalty-free

distributions from individual retirement accounts and 401(k) plans for

certain purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 27, 1997

Mr. SAXTON (for himself, Mr. DELAY, Mr. STUMP, Mr. MILLER of Florida,

Mr. ARMEY, Mr. CHABOT, and Mr. SMITH of New Jersey) 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 maximum amount of contributions to individual retirement accounts and the amounts of adjusted gross

income at which the IRA deduction phases out for active

participants in pension plans, and to allow penalty-free

distributions from individual retirement accounts and

401(k) plans for certain purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. INCREASE IN CONTRIBUTION LIMITS AND

2 AMOUNTS AT WHICH PHASE OUT OF DEDUC3 TION BEGINS FOR INDIVIDUAL RETIREMENT

4 ACCOUNT CONTRIBUTIONS.

5 (a) INCREASE IN MAXIMUM AMOUNT OF CONTRIBU6 TION TO INDIVIDUAL RETIREMENT ACCOUNTS.—

7 (1) IN GENERAL.—Subparagraph (A) of section

8 219(b)(1) of the Internal Revenue Code of 1986 (re9 lating to maximum amount of deduction) is amended

10 by striking ‘‘$2,000’’ and inserting ‘‘the applicable

11 amount’’.

12 (2) APPLICABLE AMOUNT.—Subsection (b) of

13 section 219 of such Code is amended by adding at

14 the end the following new paragraph:

15 ‘‘(5) APPLICABLE AMOUNT.—

16 ‘‘(A) IN GENERAL.—For purposes of para17 graph (1), the term ‘applicable amount’

18 means—

19 ‘‘(i) for any taxable year beginning in

20 1997, $2,500,

21 ‘‘(ii) for any taxable year beginning

22 after 1997 and before 2006, the applicable

23 amount determined under this paragraph

24 for the preceding taxable year, increased

25 by $500, and
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1 ‘‘(iii) for any taxable year beginning

2 after 2005, $7,000.

3 ‘‘(B) INFLATION ADJUSTMENT.—In the

4 case of a taxable year beginning in a calendar

5 year after 2006, the $7,000 amount contained

6 in subparagraph (A)(iii) shall be increased by

7 an amount equal to—

8 ‘‘(i) such dollar amount, multiplied by

9 ‘‘(ii) the cost-of-living adjustment

10 under section 1(f)(3) for the calendar year

11 in which the taxable year begins, deter12 mined by substituting ‘calendar year 2005’

13 for ‘calendar year 1992’ in subparagraph

14 (B) thereof.

15 If any amount as adjusted under the preceding

16 sentence is not a multiple of $10, such amount

17 shall be rounded to the nearest multiple of

18 $10.’’

19 (b) INCREASE OF AMOUNTS AT WHICH PHASE-OUT

20 OF DEDUCTION FOR IRA CONTRIBUTIONS BEGINS.—

21 (1) IN GENERAL.—Clauses (i) and (ii) of sec22 tion 219(g)(3)(B) of such Code (relating to limita23 tion on deduction for active participants in certain

24 pension plans) are amended to read as follows:
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1 ‘‘(i) in the case of a taxpayer filing a

2 joint return—

3 ‘‘(I) for taxable years beginning

4 in 1997, $50,000,

5 ‘‘(II) for taxable years beginning

6 after 1997 and before 2003, the appli7 cable dollar amount determined under

8 this subclause for the preceding tax9 able year, increased by $10,000, and

10 ‘‘(III) for taxable years beginning

11 after 2002, $110,000.

12 ‘‘(ii) in the case of any other taxpayer

13 (other than a married individual filing a

14 separate return)—

15 ‘‘(I) for taxable years beginning

16 in 1997, $30,000,

17 ‘‘(II) for taxable years beginning

18 after 1997 and before 2003, the appli19 cable dollar amount determined under

20 this subclause for the preceding tax21 able year, increased by $5,000, and

22 ‘‘(III) for taxable years beginning

23 after 2002, $60,000, and’’
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1 (2) INFLATION ADJUSTMENT.—Paragraph (3)

2 of section 219(g) of such Code is amended by adding

3 at the end the following new subparagraph:

4 ‘‘(C) INFLATION ADJUSTMENT.—In the

5 case of a taxable year beginning in a calendar

6 year after 2003, the $110,000 amount con7 tained in subparagraph (B)(i)(III) and the

8 $60,000 amount contained in subparagraph

9 (B)(ii)(III) shall each be increased by an

10 amount equal to—

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

12 ‘‘(ii) the cost-of-living adjustment

13 under section 1(f)(3) for the calendar year

14 in which the taxable year begins, deter15 mined by substituting ‘calendar year 2004’

16 for ‘calendar year 1992’ in subparagraph

17 (B) thereof.

18 If any amount as adjusted under the preceding

19 sentence is not a multiple of $100, such amount

20 shall be rounded to the nearest multiple of

21 $100.’’

22 (c) CONFORMING AMENDMENTS.—

23 (1) Paragraph (1) of section 408(a) of such

24 Code is amended by striking ‘‘$2,000’’ and inserting
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1 ‘‘the applicable amount (as in effect under section

2 219(b) for such taxable year)’’.

3 (2) Subparagraph (B) of section 408(b)(2) of

4 such Code is amended by striking ‘‘$2,000’’ and in5 serting ‘‘the applicable amount in effect under sec6 tion 219(b) for the taxable year of such individual’’.

7 (3) Subsection (b) of section 408 of such Code

8 is amended in the last sentence by striking ‘$2,000’’

9 and inserting ‘‘the applicable amount in effect under

10 section 219(b) for such taxable year’’.

11 (4) Subparagraph (A) of section 408(d)(5) of

12 such Code is amended by striking ‘‘dollar amount’’

13 and inserting ‘‘applicable amount’’.

14 (5) Subsection (j) of section 408 of such Code

15 is amended by striking ‘‘$2,000’’ and inserting ‘‘ap16 plicable’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 1996.

20 SEC. 2. PENALTY-FREE DISTRIBUTIONS FROM INDIVIDUAL

21 RETIREMENT PLANS, 401(k) PLANS, ETC.

22 (a) DISTRIBUTIONS RELATED TO FIRST HOMES,

23 EDUCATION, OR ADOPTION.—

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

25 72(t) (relating to exceptions to 10-percent additional
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1 tax on early distributions from qualified retirement

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

3 new subparagraph:

4 ‘‘(E) CERTAIN DISTRIBUTIONS FROM INDI5 VIDUAL RETIREMENT PLANS, 401(k) PLANS,

6 ETC.—Distributions to an individual from an

7 individual retirement plan, or from amounts at8 tributable to employer contributions made pur9 suant to elective deferrals described in subpara10 graph (A) or (C) of section 402(g)(3) or section

11 501(c)(18)(D)(iii), to the extent such distribu12 tions do not exceed the sum of—

13 ‘‘(i) qualified first-time homebuyer

14 distributions (as defined in paragraph (7))

15 made during the taxable year,

16 ‘‘(ii) qualified education expenses (as

17 defined in paragraph (8)) of the taxpayer

18 for the taxable year, and

19 ‘‘(iii) qualified adoption expenses (as

20 defined in section 23(d), determined with21 out regard to section 23(d)(2)(B)) paid or

22 incurred by the taxpayer during the tax23 able year.’’

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

25 by adding at the end the following new paragraphs:
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1 ‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS2 TRIBUTIONS.—For purposes of paragraph

3 (2)(E)(i)—

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

5 first-time homebuyer distribution’ means any

6 payment or distribution received by an individ7 ual to the extent such payment or distribution

8 is used by the individual before the close of the

9 60th day after the day on which such payment

10 or distribution is received to pay qualified ac11 quisition costs with respect to a principal resi12 dence of a first-time homebuyer who is such in13 dividual, the spouse of such individual, or any

14 child, grandchild, or ancestor of such individual

15 or the individual’s spouse.

16 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

17 For purposes of this paragraph, the term

18 ‘qualified acquisition costs’ means the costs of

19 acquiring, constructing, or reconstructing a res20 idence. Such term includes any usual or reason21 able settlement, financing, or other closing

22 costs.

23 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

24 DEFINITIONS.—For purposes of this para25 graph—
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1 ‘‘(i) FIRST-TIME HOMEBUYER.—The

2 term ‘first-time homebuyer’ means any in3 dividual if—

4 ‘‘(I) such individual (and if mar5 ried, such individual’s spouse) had no

6 present ownership interest in a prin7 cipal residence during the 2-year pe8 riod ending on the date of acquisition

9 of the principal residence to which

10 this paragraph applies, and

11 ‘‘(II) subsection (h) or (k) of sec12 tion 1034 did not suspend the run13 ning of any period of time specified in

14 section 1034 with respect to such in15 dividual on the day before the date

16 the distribution is applied pursuant to

17 subparagraph (A).

18 ‘‘(ii) PRINCIPAL RESIDENCE.—The

19 term ‘principal residence’ has the same

20 meaning as when used in section 1034.

21 ‘‘(iii) DATE OF ACQUISITION.—The

22 term ‘date of acquisition’ means the date—

23 ‘‘(I) on which a binding contract

24 to acquire the principal residence to
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1 which subparagraph (A) applies is en2 tered into, or

3 ‘‘(II) on which construction or re4 construction of such a principal resi5 dence is commenced.

6 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC7 QUISITION.—If any distribution from any indi8 vidual retirement plan fails to meet the require9 ments of subparagraph (A) solely by reason of

10 a delay or cancellation of the purchase or con11 struction of the residence, the amount of the

12 distribution may be contributed to an individual

13 retirement plan as provided in section

14 408(d)(3)(A)(i) (determined by substituting

15 ‘120 days’ for ‘60 days’ in such section), except

16 that—

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

18 applied to such contribution, and

19 ‘‘(ii) such amount shall not be taken

20 into account in determining whether sec21 tion 408(d)(3)(A)(i) applies to any other

22 amount.

23 ‘‘(8) QUALIFIED EDUCATION EXPENSES.—For

24 purposes of paragraph (2)(E)(ii)—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 higher education expenses’ means tuition, fees,

3 books, supplies, and equipment required for the

4 education of—

5 ‘‘(i) the taxpayer,

6 ‘‘(ii) the taxpayer’s spouse, or

7 ‘‘(iii) any child (as defined in section

8 151(c)(3)), grandchild, or ancestor of the

9 taxpayer or the taxpayer’s spouse,

10 whether or not such education takes place at an

11 eligible educational institution (as defined in

12 section 135(c)(3)).

13 ‘‘(B) COORDINATION WITH SAVINGS BOND

14 PROVISIONS.—The amount of qualified edu15 cation expenses for any taxable year shall be re16 duced by any amount excludable from gross in17 come under section 135.’’

18 (3) CONFORMING AMENDMENT.—Subparagraph

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

20 (D)’’ and inserting ‘‘, (D), or (E)’’.

21 (b) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN

22 UNEMPLOYED INDIVIDUALS NOT LIMITED TO HEALTH

23 INSURANCE COSTS AND ALLOWED FROM 401(k) PLANS,

24 ETC.—Subparagraph (D) of section 72(t)(2) is amend25 ed—
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1 (1) in clause (i), by inserting ‘‘, or from

2 amounts attributable to employer contributions

3 made pursuant to elective deferrals described in sub4 paragraph (A) or (C) of section 402(g)(3) or section

5 501(c)(18)(D)(iii),’’ after ‘‘individual retirement

6 plan’’,

7 (2) in clause (i), by inserting ‘‘and’’ at the end

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

9 subclause (II) and inserting a period, and by strik10 ing subclause (III), and

11 (3) by striking ‘‘FOR HEALTH INSURANCE PRE12 MIUMS’’ in the heading.

13 (c) UNLIMITED PENALTY-FREE DISTRIBUTIONS FOR

14 MEDICAL CARE AND EXPANDED DEFINITION OF DE15 PENDENTS FOR PURPOSES OF SUCH DISTRIBUTIONS.—

16 Subparagraph (B) of section 72(t)(2) is amended by strik17 ing ‘‘medical care’’ and all that follows and inserting

18 ‘‘medical care, determined—

19 ‘‘(i) without regard to whether the

20 employee itemizes deductions for such tax21 able year, and

22 ‘‘(ii) in the case of a distribution from

23 an individual retirement plan, or from

24 amounts attributable to employer contribu25 tions made pursuant to elective deferrals
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1 described in subparagraph (A) or (C) of

2 section 402(g)(3) or section

3 501(c)(18)(D)(iii)—

4 ‘‘(I) without regard to whether or

5 not such expenses exceed 7.5 percent

6 of adjusted gross income, and

7 ‘‘(II) by treating an individual’s

8 dependents as including all children

9 and grandchildren of the individual

10 (or of such individual’s spouse), and

11 all ancestors of the individual (or of

12 such individual’s spouse).’’

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

14 this section shall apply to payments and distributions in

15 taxable years beginning after December 31, 1996.

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