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‘‘(II) the amount of compensa-
tion (if any) includible in such individ-
ual’s gross income for the taxable year
is less than the compensation includ-
ible in the gross income of such indi-
vidual’s spouse for the taxable year.
‘‘(C) ADJUSTMENT FOR INFLATION.—
‘‘(i) IN GENERAL.—In the case of a
taxable year beginning in a calendar year
after 1998, the $2,000 amount contained
in subparagraph (A) shall be increased by
an amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjust-
ment under section 1(f)(3) for the cal-
endar year in which the taxable year
begins, determined by substituting
‘calendar year 1996’ for ‘calendar
year 1992’ in subparagraph (B) there-
of.
‘‘(ii) ROUNDING.—If any amount as
adjusted under clause (i) is not a multiple
of $50, such amount shall be rounded to
the nearest multiple of $50.
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‘‘(D) TAX ON EXCESS CONTRIBUTIONS.—
Section 4973 shall be applied separately with
respect to individual retirement plans which are
ADS accounts and individual retirement plans
which are not ADS accounts; except that, for
purposes of applying such section with respect
to individual retirement plans which are ADS
accounts, excess contributions shall be consid-
ered to be any amounts in excess of the limita-
tion under subsection (c)(2)(A).
‘‘(3) CONTRIBUTIONS PERMITTED AFTER AGE
701⁄2.—Contributions to an ADS account may be
made even after the individual for whom the account
is maintained has attained age 701⁄2.
‘‘(4) MANDATORY
DISTRIBUTION
RULES
NOT
TO APPLY, ETC.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), subsections (a)(6) and (b)(3)
of section 408 (relating to required distribu-
tions) and section 4974 (relating to excise tax
on certain accumulations in qualified retirement
plans) shall not apply to any ADS account.
‘‘(B) POST-DEATH DISTRIBUTIONS.—Rules
similar to the rules of section 401(a)(9) (other
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than subparagraph (A) thereof) shall apply for
purposes of this section.
‘‘(5) LIMITATIONS
ON
ROLLOVER
CONTRIBU-
TIONS.—No rollover contribution may be made to an
ADS account unless—
‘‘(A) such contribution is from another
ADS account, or
‘‘(B) such contribution is from an individ-
ual retirement plan (other than an ADS ac-
count) and is made before January 1, 1998.
‘‘(d) DISTRIBUTION RULES.—For purposes of this
title—
‘‘(1) GENERAL RULES.—
‘‘(A) EXCLUSION FROM GROSS INCOME.—
No portion of a qualified distribution from an
ADS account shall be includible in gross in-
come.
‘‘(B) EXCEPTION FROM PENALTY TAX.—
Section 72(t) shall not apply to—
‘‘(i) any qualified distribution from an
ADS account, and
‘‘(ii) any qualified special purpose dis-
tribution (whether or not a qualified dis-
tribution) from an ADS account.
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‘‘(2) QUALIFIED DISTRIBUTION.—For purposes
of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
distribution’ means any payment or distribu-
tion—
‘‘(i) made on or after the date on
which the individual attains age 591⁄2,
‘‘(ii) made to a beneficiary (or to the
estate of the individual) on or after the
death of the individual,
‘‘(iii) attributable to the individual’s
being disabled (within the meaning of sec-
tion 72(m)(7)), or
‘‘(iv) which is a qualified special pur-
pose distribution.
‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS.—
No payment or distribution shall be treated as
a qualified distribution if—
‘‘(i) it is made within the 5-taxable
year period beginning with the 1st taxable
year for which the individual made a con-
tribution to an ADS account (or such indi-
vidual’s spouse made a contribution to an
ADS account) established for such individ-
ual, or
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‘‘(ii) in the case of a payment or dis-
tribution properly allocable to a rollover
contribution (or income allocable thereto),
it is made within 5 years after the date on
which such rollover contribution was made,
as determined under regulations prescribed
by the Secretary.
Clause (ii) shall not apply to a rollover con-
tribution from an ADS account.
‘‘(3) INCOME INCLUSION FOR ROLLOVERS FROM
NON-ADS ACCOUNTS.—In the case of any amount
paid or distributed out of an individual retirement
plan (other than an ADS account) which is paid into
an ADS account (established for the benefit of the
payee or distributee, as the case may be) before the
close of the 60th day after the day on which the
payment or distribution is received—
‘‘(A) sections 72(t) and 408(d)(3) shall not
apply, and
‘‘(B) any amount required to be included
in gross income by reason of this paragraph
shall be so included ratably over the 4-taxable
year period beginning with the taxable year in
which the payment or distribution is made.
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‘‘(e) QUALIFIED
SPECIAL
PURPOSE
DISTRIBU-
TION.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified special purpose distribution’
means any payments or distributions from an ADS
account to the individual for whose benefit such ac-
count is established—
‘‘(A) if such payments or distributions are
qualified first-time homebuyer distributions, or
‘‘(B) to the extent such payments or dis-
tributions do not exceed—
‘‘(i) the qualified higher education ex-
penses of the taxpayer for the taxable year
in which received, and
‘‘(ii) the qualified medical expenses of
the taxpayer for the taxable year in which
received.
‘‘(2) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘qualified first-time home-
buyer distribution’ means any payment or dis-
tribution received by an individual to the extent
such payment or distribution is used by the in-
dividual before the close of the 60th day after
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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.
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‘‘(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 out
of an ADS account fails to meet the require-
ments of subparagraph (A) solely by reason of
a delay or cancellation of the purchase, con-
struction, or reconstruction of the residence, the
amount of the payment or distribution may be
contributed to an ADS account as provided in
subsection (d)(3)(A)(i) of section 408 (deter-
mined by substituting ‘120th day’ for ‘60th
day’ in such subsection), 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 determining whether sub-
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section (d)(3)(A)(i) of such section applies
to any other amount.
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of this subsection—
‘‘(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 child (as defined
in section 151(c)(3)) or grandchild,
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.
‘‘(4) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘qualified medical ex-
penses’ means any amounts paid during the
taxable year, not compensated for by insurance
or otherwise, for medical care (as defined in
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section 213(d)) of the taxpayer, his spouse, or
a dependent (as defined in section 152).
‘‘(B) LONG-TERM CARE INSURANCE PRE-
MIUMS TREATED AS MEDICAL EXPENSES.—For
purposes of subparagraph (A), the term ‘quali-
fied medical expenses’ shall include premiums
for long-term care insurance for coverage of the
taxpayer or his spouse.
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) ROLLOVER
CONTRIBUTIONS.—The term
‘rollover contributions’ means contributions de-
scribed in sections 402(c), 403(a)(4), 403(b)(8), or
408(d)(3).
‘‘(2) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f).’’
(b) TERMINATION OF NONDEDUCTIBLE IRA CON-
TRIBUTIONS.—
(1) Section 408(o) of such Code is amended by
adding at the end the following new paragraph:
‘‘(5) TERMINATION.—This subsection shall not
apply to any designated nondeductible contribution
for any taxable year beginning after December 31,
1996.’’