I
106TH CONGRESS
1ST SESSION
H. R. 876
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 25, 1999
Mr. SAXTON (for himself, Mr. ARMEY, Mr. FROST, Mr. STUMP, Mr. MILLER
of Florida, Mr. SMITH of New Jersey, Mr. BAKER, Mr. BACHUS, and Mr.
CHABOT) introduced the following bill; which was referred to the Commit-
tee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to increase
the maximum amount of contributions to individual re-
tirement 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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. INCREASE IN CONTRIBUTION LIMITS AND
AMOUNTS AT WHICH PHASE OUT OF DEDUC-
TION BEGINS FOR INDIVIDUAL RETIREMENT
ACCOUNT CONTRIBUTIONS.
(a) INCREASE IN MAXIMUM AMOUNT OF CONTRIBU-
TION TO INDIVIDUAL RETIREMENT ACCOUNTS.—
(1) IN GENERAL.—Subparagraph (A) of section
219(b)(1) of the Internal Revenue Code of 1986 (re-
lating to maximum amount of deduction) is amended
by striking ‘‘$2,000’’ and inserting ‘‘the applicable
amount’’.
(2) APPLICABLE AMOUNT.—Subsection (b) of
section 219 of such Code is amended by adding at
the end the following new paragraph:
‘‘(5) APPLICABLE AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘applicable amount’
means—
‘‘(i) for any taxable year beginning in
1999, $2,500,
‘‘(ii) for any taxable year beginning
after 1999 and before 2008, the applicable
amount determined under this paragraph
for the preceding taxable year, increased
by $500, and
‘‘(iii) for any taxable year beginning
after 2007, $7,000.
‘‘(B) INFLATION
ADJUSTMENT.—In the
case of a taxable year beginning in a calendar
year after 2008, the $7,000 amount contained
in subparagraph (A)(iii) shall be increased by
an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment
under section 1(f)(3) for the calendar year
in which the taxable year begins, deter-
mined by substituting ‘calendar year 2007’
for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any amount as adjusted under the preceding
sentence is not a multiple of $10, such amount
shall be rounded to the nearest multiple of
$10.’’
(b) INCREASE OF AMOUNTS AT WHICH PHASE-OUT
OF DEDUCTION FOR IRA CONTRIBUTIONS BEGINS.—
(1) IN GENERAL.—Clauses (i) and (ii) of sec-
tion 219(g)(3)(B) of such Code (relating to limita-
tion on deduction for active participants in certain
pension plans) are amended to read as follows:
‘‘(i) In the case of a taxpayer filing a
joint return—
‘‘(I) for taxable years beginning
in 1999, $60,000,
‘‘(II) for taxable years beginning
after 1999 and before 2004, the appli-
cable dollar amount determined under
this subclause for the preceding tax-
able year, increased by $10,000, and
‘‘(III) for taxable years beginning
after 2003, $110,000.
‘‘(ii) In the case of any other taxpayer
(other than a married individual filing a
separate return)—
‘‘(I) for taxable years beginning
in 1999, $40,000,
‘‘(II) for taxable years beginning
after 1999 and before 2004, the appli-
cable dollar amount determined under
this subclause for the preceding tax-
able year, increased by $5,000, and
‘‘(III) for taxable years beginning
after 2003, $60,000.’’
(2) INFLATION ADJUSTMENT.—Paragraph (3)
of section 219(g) of such Code is amended by adding
at the end the following new subparagraph:
‘‘(C) INFLATION
ADJUSTMENT.—In the
case of a taxable year beginning in a calendar
year after 2004, the $110,000 amount con-
tained in subparagraph (B)(i)(III) and the
$60,000 amount contained in subparagraph
(B)(ii)(III) shall each be increased by an
amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment
under section 1(f)(3) for the calendar year
in which the taxable year begins, deter-
mined by substituting ‘calendar year 2003’
for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any amount as adjusted under the preceding
sentence is not a multiple of $100, such amount
shall be rounded to the nearest multiple of
$100.’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 408(a) of such
Code is amended by striking ‘‘$2,000’’ and inserting
‘‘the applicable amount (as in effect under section
219(b) for such taxable year)’’.
(2) Subparagraph (B) of section 408(b)(2) of
such Code is amended by striking ‘‘$2,000’’ and in-
serting ‘‘the applicable amount in effect under sec-
tion 219(b) for the taxable year of such individual’’.
(3) Subsection (b) of section 408 of such Code
is amended in the last sentence by striking ‘$2,000’’
and inserting ‘‘the applicable amount in effect under
section 219(b) for such taxable year’’.
(4) Subparagraph (A) of section 408(d)(5) of
such Code is amended by striking ‘‘dollar amount’’
and inserting ‘‘applicable amount’’.
(5) Subsection (j) of section 408 of such Code
is amended by striking ‘‘$2,000’’ and inserting ‘‘ap-
plicable’’.
(6) Paragraph (8) of section 408(p) of such
Code is amended by striking ‘‘$2,000’’ and inserting
‘‘the dollar limitation in effect under section
219(b)(1)(A)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 2. PENALTY-FREE DISTRIBUTIONS.
(a) PENALTY-FREE
DISTRIBUTIONS
FOR
FIRST
HOMES AND HIGHER EDUCATION EXTENDED TO CER-
TAIN PLANS.—
(1) Subparagraphs (E) and (F) of section
72(t)(2) of the Internal Revenue Code of 1986 are
each amended by inserting ‘‘, or from amounts at-
tributable to employer contributions made pursuant
to elective deferrals described in subparagraph (A)
or 
(C) 
of 
section 
402(g)(3) 
or 
section
501(c)(18)(D)(iii),’’ after ‘‘individual retirement
plan’’.
(2) The heading of subparagraph (E) of section
72(t)(2) of such Code is amended by striking ‘‘INDI-
VIDUAL RETIREMENT PLANS’’ and inserting ‘‘CER-
TAIN’’.
(b) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN
UNEMPLOYED INDIVIDUALS NOT LIMITED TO HEALTH
INSURANCE COSTS AND ALLOWED FROM 401(k) PLANS,
ETC.—Subparagraph (D) of section 72(t)(2) of such Code
is amended—
(1) in clause (i), by inserting ‘‘, or from
amounts attributable to employer contributions
made pursuant to elective deferrals described in sub-
paragraph (A) or (C) of section 402(g)(3) or section
501(c)(18)(D)(iii),’’ after ‘‘individual retirement
plan’’,
(2) in clause (i), by inserting ‘‘and’’ at the end
of subclause (I), by striking ‘‘, and’’ at the end of
subclause (II) and inserting a period, and by strik-
ing subclause (III), and
(3) by striking ‘‘FOR HEALTH INSURANCE PRE-
MIUMS’’ in the subparagraph heading.
(c) UNLIMITED PENALTY-FREE DISTRIBUTIONS FOR
MEDICAL CARE
AND EXPANDED DEFINITION
OF DE-
PENDENTS FOR PURPOSES OF SUCH DISTRIBUTIONS.—
Subparagraph (B) of section 72(t)(2) of such Code is
amended by striking ‘‘medical care’’ and all that follows
and inserting ‘‘medical care, determined—
‘‘(i) without regard to whether the
employee itemizes deductions for such tax-
able year, and
‘‘(ii) in the case of a distribution from
an individual retirement plan, or from
amounts attributable to employer contribu-
tions made pursuant to elective deferrals
described in subparagraph (A) or (C) of
section 
402(g)(3) 
or 
section
501(c)(18)(D)(iii)—
‘‘(I) without regard to whether or
not such expenses exceed 7.5 percent
of adjusted gross income, and
‘‘(II) by treating an individual’s
dependents as including all children
and grandchildren of the individual
(or of such individual’s spouse), and
all ancestors of the individual (or of
such individual’s spouse).’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions in
taxable years beginning after December 31, 1998.
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