SEC. 2. EXCLUSION FROM GROSS INCOME OF UNEMPLOY-
MENT DISTRIBUTIONS FROM TAX-FAVORED 
ACCOUNTS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code is amended by insert-
ing after section 139B the following new section: 
‘‘SEC. 139C. DISTRIBUTIONS FROM TAX-FAVORED ACCOUNT 
DURING PERIODS OF UNEMPLOYMENT. 
‘‘(a) IN GENERAL.—Gross income shall not include 
any qualified unemployment distribution from a tax-fa-
vored account. 
‘‘(b) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED
UNEMPLOYMENT
DISTRIBU-
TION.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
unemployment distribution’ means, with respect 
to an individual, any distribution from a tax-fa-
vored account of such individual to the extent 
such distribution— 
‘‘(i) is made during a period of unem-
ployment which does not exceed 2 years, 
and 
‘‘(ii) is used during such period by the 
individual to pay qualified living expenses, 
qualified health care expenses, or qualified 
education or job training expenses. 
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‘‘(B) QUALIFIED LIVING EXPENSES.—The 
term ‘qualified living expenses’ means any of 
the following expenses of the taxpayer: rent, ac-
quisition indebtedness (as defined in section 
164(h)(3)(B)), groceries, repairs with respect to 
a vehicle or principal residence (within the 
meaning of section 121) of the taxpayer, and 
any other such necessary and common expenses 
of the individuals. Such term shall not include 
any prepayment of rent or acquisition indebted-
ness. 
‘‘(C) 
QUALIFIED
HEALTH
CARE
EX-
PENSES.—The term ‘qualified health care ex-
penses’ means amounts paid by such individual 
for medical care (as defined in section 213(d) 
for such individual, the spouse of such indi-
vidual, and any dependent (as defined in section 
152, determined without regard to subsections 
(b)(1), (b)(2), and (d)(1)(B) thereof) of such 
individual, but only to the extent such amounts 
are not compensated for by insurance or other-
wise. 
‘‘(D) QUALIFIED
EDUCATION
OR
JOB 
TRAINING EXPENSES.—The term ‘qualified edu-
cation or job training expenses’ means any ex-
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penses which would (but for subsection (c)) be 
qualified tuition and related expenses for pur-
poses of section 25A(c) (relating to Lifetime 
Learning Credit). 
‘‘(2) TAX-FAVORED ACCOUNT.—The term ‘tax- 
favored account’ means any of the following: 
‘‘(A) An eligible retirement plan (as de-
fined in section 402(c)(8)(B)). 
‘‘(B) A health savings account described in 
section 223. 
‘‘(C) A Roth IRA. 
‘‘(D) A qualified tuition program described 
in section 529. 
‘‘(c) AMOUNT DISTRIBUTED MAY BE REPAID.— 
‘‘(1) IN GENERAL.—Any individual who receives 
a qualified unemployment distribution may make 
one or more contributions in an aggregate amount 
not to exceed the amount of such distribution to a 
tax-favored account of which such individual is a 
beneficiary and to which a rollover contribution of 
such distribution could be made under section 
402(c), 
403(a)(4), 
403(b)(8), 
408(d)(3), 
or 
457(e)(16), 223(f)(5), or 529(c)(3)(C), as the case 
may be. 
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‘‘(2) TREATMENT
OF
REPAYMENTS
OF
DIS-
TRIBUTIONS
FROM
ELIGIBLE
RETIREMENT
PLANS 
OTHER THAN IRAS.—For purposes of this title, if a 
contribution is made pursuant to subparagraph (A) 
with respect to a qualified unemployment distribu-
tion from an eligible retirement plan other than an 
individual retirement plan, then the taxpayer shall, 
to the extent of the amount of the contribution, be 
treated as having received the qualified unemploy-
ment distribution in an eligible rollover distribution 
(as defined in section 402(c)(4)) and as having 
transferred the amount to the eligible retirement 
plan in a direct trustee to trustee transfer within 60 
days of the distribution. 
‘‘(3) TREATMENT
OF
REPAYMENTS
FOR
DIS-
TRIBUTIONS FROM IRAS.—For purposes of this title, 
if a contribution is made pursuant to subparagraph 
(A) with respect to a qualified unemployment dis-
tribution from an individual retirement plan (as de-
fined by section 7701(a)(37)), then, to the extent of 
the amount of the contribution, the qualified unem-
ployment distribution shall be treated as a distribu-
tion described in section 408(d)(3) and as having 
been transferred to the eligible retirement plan in a 
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direct trustee to trustee transfer within 60 days of 
the distribution. 
‘‘(4) OTHER
TAX-FAVORED
ACCOUNTS.—For 
purposes of this title, if a contribution is made pur-
suant to subparagraph (A) with respect to a quali-
fied unemployment distribution— 
‘‘(A) from a health savings account de-
scribed in section 223, or 
‘‘(B) from a qualified tuition program de-
scribed in section 529 
then, to the extent of the amount of the contribu-
tion, the qualified unemployment distribution shall 
be treated as a distribution described in section 
529(c)(3)(C) or 223(f)(5), as the case may be, and 
as having been transferred to such account or pro-
gram, as the case may be, within 60 days of the dis-
tribution. 
‘‘(d) DENIAL OF DOUBLE BENEFIT.—Any qualified 
unemployment distribution with respect to any expense de-
scribed in (b)(1)(A)(ii) which is excluded from gross in-
come under this section shall not be taken into account 
in determining any deduction or credit under this chapter 
relating to such an expense.’’. 
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(b) CONFORMING AMENDMENT.—Paragraph (2) of 
section 72(t) of such Code is amended by adding at the 
end the following new subparagraph: 
‘‘(H) UNEMPLOYMENT
DISTRIBUTIONS.— 
Any distribution excludable from gross income 
under section 139C (relating to distributions 
from tax-favored account during periods of un-
employment).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for part III of subchapter B of chapter 1 of such Code 
is amended by inserting after the item relating to section 
139B the following new section: 
‘‘Sec. 139C. Distributions from tax-favored account during periods of unem-
ployment.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after the 
date of the enactment of this Act. 
Æ 
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