I
104TH CONGRESS
2D SESSION
H. R. 4311
To amend the Internal Revenue Code of 1986 to allow penalty-free withdraw-
als from IRAs for certain purposes, to increase the amount of tax
deductible IRA contributions, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 28, 1996
Mr. MCCOLLUM 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 allow pen-
alty-free withdrawals from IRAs for certain purposes,
to increase the amount of tax deductible IRA contribu-
tions, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. PENALTY-FREE DISTRIBUTIONS FROM IRAS
AND EXCLUSION FROM INCOME OF CERTAIN
IRA DISTRIBUTIONS WHICH ARE REPAID.
(a) IN GENERAL.—Paragraph (2) of section 72(t) of
the Internal Revenue Code of 1986 (relating to exceptions
to 10-percent additional tax on early distributions from
qualified retirement plans) is amended by adding at the
end the following new subparagraph:
‘‘(D) 
DISTRIBUTIONS
FROM
CERTAIN
PLANS FOR FIRST HOME PURCHASES, HIGHER
EDUCATION EXPENSES, QUALIFIED LONG TERM
CARE EXPENSES, AND QUALIFIED UNEMPLOY-
MENT
DISTRIBUTIONS.—Distributions to an
employee from an individual retirement plan—
‘‘(i) which are qualified first-time
homebuyer distributions,
‘‘(ii) to the extent such distributions
do not exceed the qualified higher edu-
cation expenses of the taxpayer for the tax-
able year,
‘‘(iii) to the extent such distributions
do not exceed the expenses paid by the tax-
payer during the taxable year for qualified
long-term care services (as defined in sec-
tion 7702B(c)), or
‘‘(iv) which are qualified unemploy-
ment distributions.’’
(b) DEFINITIONS.—Section 72(t) of such Code is
amended by adding at the end the following new para-
graphs:
‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2)(D)(i), the term ‘qualified first-time
homebuyer distribution’ means any payment or
distribution received by an individual to the ex-
tent such payment or distribution is used by the
individual before the close of the 60th day after
the day on which such payment or distribution
is received to pay qualified acquisition costs
with respect to a principal residence for such
individual as a first-time homebuyer.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
For purposes of this paragraph, the term
‘qualified acquisition costs’ means the costs of
acquiring, constructing, or reconstructing a res-
idence. Such term includes any usual or reason-
able settlement, financing, or other closing
costs.
‘‘(C) FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For purposes of this para-
graph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if such individual (and, if married,
such individual’s spouse) had no present
ownership interest in a principal residence
during the 3-year period ending on the
date of acquisition of the principal resi-
dence to which this paragraph applies.
‘‘(ii) 
PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(iii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date—
‘‘(I) on which a binding contract
to acquire the principal residence to
which subparagraph (A) applies is en-
tered into, or
‘‘(II) on which a binding contract
to construct or reconstruct such a
principal residence is entered into.
‘‘(D) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—If any payment or distribution
fails to meet the requirements of subparagraph
(A) solely by reason of a delay or cancellation
of the purchase, construction, or reconstruction
of the residence, the amount of the payment or
distribution may be contributed to an individual
retirement account as provided in subsection
(d)(3)(A)(i) of section 408 (determined by sub-
stituting ‘120th day’ for ‘60th day’ in such sub-
section), except that—
‘‘(i) subsection (d)(3)(B) of such sec-
tion shall not be applied to such contribu-
tion, and
‘‘(ii) such amount shall not be taken
into 
account 
in 
applying 
subsection
(d)(3)(B) to any other amount.
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of paragraph (2)(D)(ii)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) the taxpayer’s dependent (as de-
fined in section 152),
at an eligible educational institution (as defined
in section 135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified higher
education expenses for any taxable year shall be
reduced by any amount excludable from gross
income under section 135.
‘‘(8) QUALIFIED
UNEMPLOYMENT
DISTRIBU-
TION.—For purposes of paragraph (2)(D)(iv), the
term ‘qualified unemployment distribution’ means a
distribution from an individual retirement plan to an
individual after the individual or the individual’s
spouse has received benefits under any Federal or
State unemployment compensation law for not less
than 12 consecutive weeks by reason of separation
from employment, if such distribution is made dur-
ing the taxable year during which such unemploy-
ment compensation is paid or the succeeding taxable
year.’’
(c) IRA DISTRIBUTIONS TO PAY FINANCIALLY DEV-
ASTATING MEDICAL EXPENSES.—
(1) IN GENERAL.—Section 72(t)(3)(A) of such
Code is amended by striking ‘‘, (B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND AN-
CESTORS
TREATED
AS
DEPENDENTS.—Subpara-
graph (B) of section 72(t)(2) of such Code is
amended by striking ‘‘medical care’’ and all that fol-
lows 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 an individual re-
tirement plan, by treating such employee’s
dependents as including—
‘‘(I) all children and grand-
children of the employee or such em-
ployee’s spouse, and
‘‘(II) all ancestors of the em-
ployee or such employee’s spouse.’’
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) of such Code is amended by
striking ‘‘or (C)’’ and inserting ‘‘, (C), or (D)’’.
(d) EXCLUSION FROM INCOME OF CERTAIN DIS-
TRIBUTIONS WHICH ARE REPAID.—Section 408 of the In-
ternal Revenue Code of 1986 (relating to individual retire-
ment accounts) is amended by redesignating subsection
(p) as subsection (q) and by inserting after subsection (o)
the following new subsection:
‘‘(p) REPAYABLE DISTRIBUTIONS FROM INDIVIDUAL
RETIREMENT ACCOUNTS FOR FIRST HOME PURCHASES,
HIGHER EDUCATION EXPENSES, QUALIFIED LONG TERM
CARE
EXPENSES, QUALIFIED
UNEMPLOYMENT
DIS-
TRIBUTIONS, AND FINANCIALLY DEVASTATING MEDICAL
EXPENSES.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this section, gross income shall not in-
clude any qualified distribution.
‘‘(2) REPAYMENT REQUIREMENT.—
‘‘(A) ADDITION TO TAX.—If the required
recontributions made by the taxpayer during
the repayment period are less than the qualified
distribution, the tax imposed by this chapter for
the last taxable year in the repayment period
shall be increased by the amount determined
under subparagraph (B).
‘‘(B) DETERMINATION OF AMOUNT.—The
amount determined under this subparagraph
shall be an amount which bears the same ratio
to the tax benefit amount as—
‘‘(i) the excess (if any) of the qualified
distribution over required recontributions
made during the repayment period, bears
to
‘‘(ii) the qualified distribution.
‘‘(C) REPAYMENT PERIOD.—For purposes
of this subsection, the term ‘repayment period’
means, with respect to any qualified distribu-
tion, the 5-taxable year period beginning after
the taxable year in which such distribution is
received.
‘‘(D) TAX
BENEFIT
AMOUNT.—For pur-
poses of this subsection, the term ‘tax benefit
amount’ means, with respect to any qualified
distribution, the sum of—
‘‘(i) the aggregate reduction in the tax
imposed by this chapter for the taxable
year in which such distribution is received
by reason of the exclusion under paragraph
(1), and
‘‘(ii) interest on the amount of such
reduction for the repayment period com-
puted at the Federal mid-term rate (within
the meaning of section 1274(d)(1)) and
compounded annually.
‘‘(3) QUALIFIED DISTRIBUTION.—For purposes
of this subsection, the term ‘qualified distribution’
means any distribution described in subparagraph
(B) or (D) of section 72(d)(2) to an individual from
an individual retirement plan maintained for the
benefit of such individual.
‘‘(4) RECONTRIBUTION
OF
QUALIFIED
DIS-
TRIBUTIONS.—
‘‘(A) IN
GENERAL.—If an individual re-
ceived a qualified distribution, such individual
shall make required recontributions in the man-
ner provided in this paragraph to an individual
retirement plan maintained for the benefit of
such individual.
‘‘(B) METHOD OF MAKING RECONTRIBU-
TION.—Any required recontribution—
‘‘(i) shall be made during the repay-
ment period for the qualified distribution,
‘‘(ii) shall not exceed the qualified dis-
tribution reduced by any prior recontribu-
tion under this paragraph with respect to
such distribution, and
‘‘(iii) shall be made by making a pay-
ment in cash to an individual retirement
plan for the benefit of such individual.
An individual making a required recontribution
under this paragraph shall designate (in the
manner prescribed by the Secretary) such con-
tribution as a required recontribution under
this paragraph and shall specify the qualified
distribution with respect to which such recon-
tribution is being made.
‘‘(C) TREATMENT
AS
ROLLOVER
CON-
TRIBUTION.—For purposes of this title, any re-
quired recontribution under this paragraph
shall be treated as a rollover contribution de-
scribed in subsection (d)(3).
‘‘(7) OTHER SPECIAL RULES.—
‘‘(A) BASIS RULES NOT AFFECTED.—The
tax treatment under this chapter of any dis-
tribution (other than a qualified distribution)
shall be determined as if this subsection had
not been enacted.
‘‘(B) AGGREGATION RULE.—For purposes
of this subsection, all qualified distributions re-
ceived by an individual during a taxable year
shall be treated as a single distribution.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions received in taxable
years beginning after December 31, 1996.
SEC. 2. INCREASE IN AMOUNT OF DEDUCTIBLE IRA CON-
TRIBUTIONS AND INDEXING FOR INFLATION.
(a) INCREASE IN MAXIMUM AMOUNT OF DEDUC-
TION.—Subparagraph (A) of section 219(b)(1) of the In-
ternal Revenue Code of 1986 (relating to maximum
amount of deduction) is amended by striking ‘‘$2,000’’
and inserting ‘‘$4,500’’.
(b) INFLATION ADJUSTMENTS.—Subsection (f) of
section 219 of such Code is amended by adding at the
end the following new paragraph:
‘‘(8) INFLATION ADJUSTMENTS.—In the case of
a taxable year beginning in a calendar year after
1997, each dollar amount set forth in subsections
(b)(1)(A) and (g)(3)(B) shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1996’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall
be rounded to the nearest multiple of $100.’’
(c) CONFORMING AMENDMENTS.—
(1) Subsections (a)(1) and (b)(2)(B) of section
408 of such Code are each amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar limitation in ef-
fect under section 219(b)(1)(A)’’.
(2) Subsection (j) of section 408 of such Code
is amended by striking ‘‘the $2,000 amounts con-
tained’’ and inserting ‘‘the dollar limitations referred
to’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 3. ELIMINATION OF PHASE-OUT FOR INDIVIDUALS
NOT ACTIVE PARTICIPANTS IN DEFINED CON-
TRIBUTION PLANS AND INCREASE OF IN-
COME LIMITS FOR OTHERS.
(a) ELIMINATION OF PHASE-OUT FOR INDIVIDUALS
NOT ACTIVE PARTICIPANTS IN DEFINED CONTRIBUTION
PLAN.—Paragraph (5) of section 219(g) of the Internal
Revenue Code of 1986 (relating to active participant) is
amended by striking the period at the end of subpara-
graph (B) and inserting a comma, and by inserting after
subparagraph (B) the following:
‘‘if such plan, contract, pension, or trust is a defined
contribution plan (as defined in section 414(i)).’’
(b) INCREASE IN INCOME PHASEOUT LEVELS.—
(1) IN GENERAL.—Subparagraph (B) of section
219(g)(3) of such Code (relating to applicable dollar
amount) is amended—
(A) by striking ‘‘$40,000’’ and inserting
‘‘$120,000’’, and