‘‘(2) ACCOUNT TERMINATIONS.—Rules similar
to the rules of paragraphs (2) and (4) of section
408(e) shall apply to Child Retirement Accounts; ex-
cept that such paragraph (4) shall not apply to loans
which are qualified special purpose distributions.
‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—
‘‘(A) WITHHOLDING.—The trustee of a
Child Retirement Account shall deduct and
withhold from any distribution from such Ac-
count a tax equal to 20 percent of such dis-
tribution.
‘‘(B) NO OTHER TAX.—Distributions from
a Child Retirement Account shall not be includ-
ible in gross income.
‘‘(C) CREDIT
FOR
AMOUNTS
WITHHELD
ONLY ON QUALIFIED SPECIAL PURPOSE LOAN
DISTRIBUTIONS
WHICH
ARE
REPAID.—In the
case of an amount withheld under subpara-
graph (A) on a qualified special purpose dis-
tribution from a Child Retirement Account in
the form of a loan, there shall be allowed as a
credit against the tax imposed by this subtitle
for any taxable year an amount which bears the
same ratio to the amount withheld as the prin-
cipal amount of such loan which is repaid dur-
ing such taxable year bears to the total prin-
cipal amount of the loan. The credit allowed
under the preceding sentence shall be treated as
a credit allowed under subpart C of part IV of
subchapter A of this chapter and shall be al-
lowed to the account beneficiary.
‘‘(2) PENALTY ON DISTRIBUTIONS NOT USED
FOR QUALIFIED PURPOSES.—If any distribution is
made from a Child Retirement Account which is not
a qualified distribution, the account beneficiary’s tax
imposed by this chapter for the taxable year in
which such distribution is made shall be increased by
an amount equal to 50 percent of such distribution.
‘‘(3) QUALIFIED DISTRIBUTION.—For purposes
of paragraph (2), the term ‘qualified distribution’
means any distribution—
‘‘(A) made on or after the date on which
the account beneficiary attains age 591⁄2,
‘‘(B) made to a beneficiary (or to the es-
tate of the individual) on or after the death of
the account beneficiary,
‘‘(C) attributable to the account bene-
ficiary being disabled (within the meaning of
section 72(m)(7)), or
‘‘(D) which is a qualified special purpose
distribution.
‘‘(4) QUALIFIED SPECIAL PURPOSE DISTRIBU-
TION.—For purposes of paragraph (3), the term
‘qualified special purpose distribution’ means any
distribution (including in the form of a loan) from
a Child Retirement Account to the account bene-
ficiary—
‘‘(A) if such distribution is a qualified
first-time homebuyer distribution, or
‘‘(B) to the extent the aggregate distribu-
tions from the Account does not exceed the
qualified higher education expenses of the ac-
count beneficiary for the taxable year in which
received.
Such term shall not include any distribution from
such an Account during a calendar year to the ex-
tent such distribution, when added to the amount of
all prior distributions from such Account during the
calendar year and all prior calendar years, exceeds
an amount equal to 50 percent of the balance in
such Account as of the close of the prior calendar
year.
‘‘(5) 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 the account beneficiary to
the extent such payment or distribution is used
by such beneficiary within a reasonable period
to pay qualified acquisition costs with respect to
a principal residence for such beneficiary 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.
‘‘(6) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means—
‘‘(i) expenses for tuition, fees, books,
supplies, and equipment required for the
enrollment or attendance of the account
beneficiary at an eligible educational insti-
tution (as defined in section 135(c)(3)),
and
‘‘(ii) reasonable living expenses while
away from home while attending such in-
stitution.
‘‘(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.
‘‘(7) EXCEPTIONS
FROM
WITHHOLDING
TAX
AND
PENALTY
FOR
TRUSTEE-TO-TRUSTEE
TRANS-
FERS.—Paragraphs (1)(A) and (2) shall not apply
to any trustee-to-trustee transfers from a Child Re-
tirement Account to another Child Retirement Ac-
count of the same account beneficiary.
‘‘(d) APPROVED MUTUAL FUND.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘approved mutual
fund’ means any fund of any regulated investment
company (as defined in section 851(a)) if—
‘‘(A) an election under section 851(b)(1) is
in effect with respect to such company, and
‘‘(B) such fund is designated by the Fed-
eral Retirement Thrift Investment Board for
purposes of this section.
‘‘(2) STANDARDS FOR DESIGNATION.—A fund
may be designated under paragraph (1) only if the
Federal Retirement Thrift Investment Board deter-
mines that it is reasonable to expect that not less
than 75 percent of the total value of the assets of
such fund are represented by equity securities.
‘‘(e) CERTAIN RULES TO APPLY.—Rules similar to
the following rules shall apply for purposes of this section:
‘‘(1) Section 219(f)(3) (relating to time when
contributions deemed made).
‘‘(2) Section 408(g) (relating to community
property laws).
‘‘(3) Section 408(h) (relating to custodial ac-
counts).
‘‘(f) REPORTS.—The Secretary may require the
trustee of a Child Retirement Account to make such re-
ports regarding such Account to the Secretary and to the
account beneficiary with respect to contributions, distribu-
tions, and such other matters as the Secretary determines
appropriate. The reports required by this subsection shall
be filed at such time and in such manner and furnished
to such individuals at such time and in such manner as
may be required by the Secretary.’’
(b) CONFORMING AMENDMENTS.—
(1) TAX ON PROHIBITED TRANSACTIONS.—
(A) Section 4975 of such Code (relating to
tax on prohibited transactions) is amended by
adding at the end of subsection (c) the follow-
ing new paragraph:
‘‘(5) SPECIAL RULE FOR CHILD RETIREMENT
ACCOUNTS.—An individual for whose benefit a Child
Retirement Account (within the meaning of section
530(a)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a Child
Retirement Account by reason of the application of
section 530(b)(2) to such Account.’’
(B) Paragraph (1) of section 4975(e) of
such Code is amended by striking ‘‘or’’ at the
end of subparagraph (D), by redesignating sub-
paragraph (E) as subparagraph (F), and by in-
serting after subparagraph (D) the following
new subparagraph:
‘‘(E) a Child Retirement Account described
in section 530(a), or’’.
(2) FAILURE TO PROVIDE REPORTS ON CHILD
RETIREMENT ACCOUNTS.—Paragraph (2) of section
6693(a) of such Code is amended by striking ‘‘and’’
at the end of subparagraph (A), by striking the pe-
riod at the end of subparagraph (B) and inserting
‘‘, and’’, and by adding at the end the following new
subparagraph:
‘‘(C) section 530(f) (relating to Child Re-
tirement Accounts).’’
(3) CLERICAL AMENDMENTS.—
(A) The table of parts for subchapter F of
chapter 1 of such Code is amended by adding
at the end the following new item:
‘‘Part IX. Child Retirement Accounts.’’
(B) The section heading for section 6693
of such Code is amended to read as follows:
‘‘SEC. 6693. FAILURE TO PROVIDE REPORTS ON CERTAIN
RETIREMENT ACCOUNTS, ETC.’’
(C) The table of sections for part I of sub-
chapter B of chapter 68 of such Code is amend-
ed by striking the item relating to section 6693
and inserting the following new item:
‘‘Sec. 6693. Failure to provide reports on certain retirement ac-
counts, etc.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
Æ