I
105TH CONGRESS
1ST SESSION
H. R. 891
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 27, 1997
Mr. SAXTON (for himself, Mr. DELAY, Mr. STUMP, Mr. MILLER of Florida,
Mr. ARMEY, Mr. CHABOT, and Mr. SMITH of New Jersey) 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 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
1997, $2,500,
‘‘(ii) for any taxable year beginning
after 1997 and before 2006, the applicable
amount determined under this paragraph
for the preceding taxable year, increased
by $500, and
‘‘(iii) for any taxable year beginning
after 2005, $7,000.
‘‘(B) INFLATION
ADJUSTMENT.—In the
case of a taxable year beginning in a calendar
year after 2006, 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 2005’
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 1997, $50,000,
‘‘(II) for taxable years beginning
after 1997 and before 2003, 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 2002, $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 1997, $30,000,
‘‘(II) for taxable years beginning
after 1997 and before 2003, 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 2002, $60,000, and’’
(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 2003, 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 2004’
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’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 2. PENALTY-FREE DISTRIBUTIONS FROM INDIVIDUAL
RETIREMENT PLANS, 401(k) PLANS, ETC.
(a) DISTRIBUTIONS RELATED
TO FIRST HOMES,
EDUCATION, OR ADOPTION.—
(1) IN
GENERAL.—Paragraph (2) of section
72(t) (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:
‘‘(E) CERTAIN DISTRIBUTIONS FROM INDI-
VIDUAL
RETIREMENT
PLANS, 401(k) PLANS,
ETC.—Distributions to an individual from an
individual retirement plan, or from amounts at-
tributable to employer contributions made pur-
suant to elective deferrals described in subpara-
graph (A) or (C) of section 402(g)(3) or section
501(c)(18)(D)(iii), to the extent such distribu-
tions do not exceed the sum of—
‘‘(i) qualified first-time homebuyer
distributions (as defined in paragraph (7))
made during the taxable year,
‘‘(ii) qualified education expenses (as
defined in paragraph (8)) of the taxpayer
for the taxable year, and
‘‘(iii) qualified adoption expenses (as
defined in section 23(d), determined with-
out regard to section 23(d)(2)(B)) paid or
incurred by the taxpayer during the tax-
able year.’’
(2) DEFINITIONS.—Section 72(t) is amended
by adding at the end the following new paragraphs:
‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For 
purposes 
of 
paragraph
(2)(E)(i)—
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ means any
payment or distribution received by an individ-
ual to the extent 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 ac-
quisition costs with respect to a principal resi-
dence of a first-time homebuyer who is such in-
dividual, the spouse of such individual, or any
child, grandchild, or ancestor of such individual
or the individual’s spouse.
‘‘(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—
‘‘(I) such individual (and if mar-
ried, such individual’s spouse) had no
present ownership interest in a prin-
cipal residence during the 2-year pe-
riod ending on the date of acquisition
of the principal residence to which
this paragraph applies, and
‘‘(II) subsection (h) or (k) of sec-
tion 1034 did not suspend the run-
ning of any period of time specified in
section 1034 with respect to such in-
dividual on the day before the date
the distribution is applied pursuant to
subparagraph (A).
‘‘(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 construction or re-
construction of such a principal resi-
dence is commenced.
‘‘(D) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—If any distribution from any indi-
vidual retirement plan fails to meet the require-
ments of subparagraph (A) solely by reason of
a delay or cancellation of the purchase or con-
struction of the residence, the amount of the
distribution may be contributed to an individual
retirement 
plan 
as 
provided 
in 
section
408(d)(3)(A)(i) (determined by substituting
‘120 days’ for ‘60 days’ in such section), except
that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
‘‘(ii) such amount shall not be taken
into account in determining whether sec-
tion 408(d)(3)(A)(i) applies to any other
amount.
‘‘(8) QUALIFIED EDUCATION EXPENSES.—For
purposes of paragraph (2)(E)(ii)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
education of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) any child (as defined in section
151(c)(3)), grandchild, or ancestor of the
taxpayer or the taxpayer’s spouse,
whether or not such education takes place at an
eligible educational institution (as defined in
section 135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified edu-
cation expenses for any taxable year shall be re-
duced by any amount excludable from gross in-
come under section 135.’’
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(D)’’ and inserting ‘‘, (D), or (E)’’.
(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) is amend-
ed—
(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 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) is amended by strik-
ing ‘‘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, 1996.
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