I
105TH CONGRESS
2D SESSION
H. R. 4349
To amend the Internal Revenue Code of 1986 to provide for an exception
from penalty tax and exclusion from income for certain amounts with-
drawn from certain retirement plans for qualified long-term care insur-
ance and a credit for taxpayers with certain persons requiring custodial
care in their households.
IN THE HOUSE OF REPRESENTATIVES
JULY 29, 1998
Mr. SMITH of New Jersey (for himself, Mr. ENGLISH of Pennsylvania, Mr.
PAUL, Mr. ENSIGN, and Mr. SHAYS) 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 provide
for an exception from penalty tax and exclusion from
income for certain amounts withdrawn from certain re-
tirement plans for qualified long-term care insurance and
a credit for taxpayers with certain persons requiring
custodial care in their households.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Long-Term Care Advancement Act of 1998’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. EXCEPTION FROM PENALTY TAX AND EXCLUSION
FROM INCOME FOR AMOUNTS WITHDRAWN
FROM CERTAIN RETIREMENT PLANS FOR
QUALIFIED LONG-TERM CARE INSURANCE.
(a) EXCEPTION FROM PENALTY TAX.—Paragraph
(2) of section 72(t) (relating to 10-percent additional tax
on early distributions from qualified retirement plans) is
amended by adding at the end the following new subpara-
graph:
‘‘(G) PREMIUMS
FOR
QUALIFIED
LONG-
TERM CARE INSURANCE CONTRACTS.—
‘‘(i) IN
GENERAL.—Distributions to
an individual from an individual retirement
plan, or from amounts attributable to em-
ployer contributions made pursuant to
elective deferrals described in subpara-
graph (A) or (C) of section 402(g)(3), to
the extent such distributions do not exceed
the premiums for a qualified long-term
140 and by inserting after section 138 the following new
section:
‘‘SEC. 139. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT
PLANS 
AND 
SECTION 
401(k) 
PLANS 
FOR
LONG-TERM CARE INSURANCE.
‘‘(a) GENERAL RULE.—The amount which would
(but for this section) be includible in the gross income of
an individual for the taxable year by reason of distribu-
tions from any individual retirement plan (within the
meaning of section 7701(a)(37)) or qualified cash or de-
ferred arrangement (within the meaning of section
401(k)) shall be reduced (but not below zero) by the eligi-
ble long-term care premiums (as defined in section
213(d)(10)) paid by such individual during such taxable
year for any qualified long-term care insurance contract
covering such individual or the spouse of such individual.
‘‘(b) SPECIAL RULES FOR SECTION 401(k) PLANS.—
‘‘(1) WITHDRAWALS
CANNOT
EXCEED
ELEC-
TIVE CONTRIBUTIONS UNDER QUALIFIED CASH OR
DEFERRED ARRANGEMENT.—This section shall not
apply to any distribution from a qualified cash or
deferred arrangement (within the meaning of section
401(k)) to the extent the aggregate amount of such
distributions for the use described in subsection (a)
exceeds the aggregate employer contributions made
pursuant to the employee’s election under section
401(k)(2).
‘‘(2) WITHDRAWALS NOT TO CAUSE DISQUALI-
FICATION.—A plan shall not be treated as failing to
satisfy the requirements of section 401, and an ar-
rangement shall not be treated as failing to be a
qualified cash or deferred arrangement (within the
meaning of section 401(k)), merely because under
the plan or arrangement distributions are permitted
which are excludable from gross income by reason of
this section.
‘‘(c) QUALIFIED LONG-TERM CARE INSURANCE CON-
TRACT.—For purposes of this section, the term ‘qualified
long-term care insurance contract’ has the meaning given
such term by section 7702B(b), except that such term in-
cludes only such contracts which are licensed for sale in
the State in which the taxpayer purchased the policy.’’
(c) DISTRIBUTIONS
PERMITTED
FROM
CERTAIN
PLANS TO PAY LONG-TERM CARE PREMIUMS.—
(1) Section 401(k)(2)(B)(i) is amended by
striking ‘‘or’’ at the end of subclause (III), by strik-
ing ‘‘and’’ at the end of subclause (IV) and inserting
‘‘or’’, and by inserting after subclause (IV) the fol-
lowing new subclause:
‘‘(V) the date distributions for
premiums for a long-term care insur-
ance contract (as defined in section
139(c)) for coverage of such individ-
ual or the spouse of such individual
are made, and’’.
(2) Section 403(b)(11) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting
‘‘, or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) for the payment of premiums for a
long-term care insurance contract (as defined in
section 139(c)) for coverage of the employee or
the spouse of the employee.’’
(3) Subparagraph (A) of section 457(d)(1) is
amended by striking ‘‘or’’ at the end of clause (ii),
by striking ‘‘and’’ at the end of clause (iii) and in-
serting ‘‘or’’, and by inserting after clause (iii) the
following new clause:
‘‘(iv) the date distributions for pre-
miums for a long-term care insurance con-
tract (as defined in section 139(c)) for cov-
erage of such individual or the spouse of
such individual are made, and’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 72(t)(2)(B) is amended by striking
‘‘subparagraph (A), (C), or (D)’’ and inserting ‘‘sub-
paragraph (A), (C), (D), or (G)’’.
(2) Section 401(k) is amended by adding at the
end the following new paragraph:
‘‘(13) CROSS REFERENCE.—
‘‘For provision permitting tax-free withdrawals
for payment of long-term care premiums, see section
139.’’
(3) Section 408(d) is amended by adding at the
end the following new paragraph:
‘‘(8) CROSS REFERENCE.—
‘‘For provision permitting tax-free withdrawals
from individual retirement plans for payment of
long-term care premiums, see section 139.’’
(4) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
last item and inserting the following new items:
‘‘Sec. 139. Distributions from individual retirement plans and sec-
tion 401(k) plans for long-term care insurance.
‘‘Sec. 140. Cross references to other Acts.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions after
December 31, 1997.
SEC. 3. REFUNDABLE CREDIT FOR TAXPAYERS WITH CER-
TAIN PERSONS REQUIRING CUSTODIAL CARE
IN THEIR HOUSEHOLDS.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 (relating to refundable credits) is
amended by redesignating section 35 as section 36 and
by inserting after section 34 the following new section:
‘‘SEC. 35. CREDIT FOR TAXPAYERS WITH CERTAIN PERSONS
REQUIRING 
CUSTODIAL 
CARE 
IN 
THEIR
HOUSEHOLDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual who maintains a household which includes as a
member one or more qualified persons, there shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to $500 for each
such person.
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS IN-
COME.—
‘‘(1) IN GENERAL.—The amount of the credit
allowable under subsection (a) shall be reduced (but
not below zero) by $50 for each $1,000 (or fraction
thereof) by which the taxpayer’s modified adjusted
gross income exceeds the threshold amount. For
purposes of the preceding sentence, the term ‘modi-
fied adjusted gross income’ means adjusted gross in-
(b) CLERICAL AMENDMENT.—The table of sections
for subpart C of part IV of subchapter A of chapter 1
is amended by striking the last item and inserting the fol-
lowing:
‘‘Sec. 35. Credit for taxpayers with certain persons requiring cus-
todial care in their households.
‘‘Sec. 36. Overpayments of tax.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
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