tions which the Secretary deems necessary to ensure the
quality of plan audits.
‘‘(iv) For purposes of clause (ii)(II), an external qual-
ity control review shall be treated as qualified with respect
to a person referred to in clause (ii) if—
‘‘(I) such review is performed in accordance
with the requirements of external quality control re-
view programs of recognized auditing standard-set-
ting bodies, as determined under regulations of the
Secretary, and
‘‘(II) in the case of any such person who has,
during the peer review period, conducted one or
more previous audits of employee benefit plans, such
review includes the review of an appropriate number
(determined as provided in such regulations, but in
no case less than one) of plan audits in relation to
the scale of such person’s auditing practice.
The Secretary shall issue the regulations under subclause
(I) no later than December 31, 1997.’’
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply with respect to plan years beginning on
or after the date which is 3 years after the date of
the enactment of this Act.
(2) RESTRICTIONS ON CONDUCTING EXAMINA-
TIONS.—Clause (iii) of section 103(a)(3)(C) of the
Employee Retirement Income Security Act of 1974
(as added by subsection (a)(6)) shall take effect on
the date of enactment of this Act.
SEC. 535. CLARIFICATION OF FIDUCIARY PENALTIES.
(a) MODIFICATION OF PROHIBITION OF ASSIGNMENT
OR ALIENATION.—
(1) AMENDMENT
TO
ERISA.—Section 206(d)
(29 U.S.C. 1056(d)) is amended by adding at the
end the following new paragraphs:
‘‘(4) Paragraph (1) shall not apply to any offset of
a participant’s accrued benefit in an employee pension
benefit plan against an amount that the participant is or-
dered or required to pay to the plan if—
‘‘(A) the order or requirement to pay arises—
‘‘(i) under a judgment of conviction for a
crime involving such plan,
‘‘(ii) under a civil judgment (including a
consent order or decree) entered by a court in
an action brought in connection with a violation
(or alleged violation) of part 4 of this subtitle,
or
‘‘(iii) pursuant to a settlement agreement
between the Secretary and the participant, or a
settlement agreement between the Pension Ben-
efit Guaranty Corporation and the participant,
in connection with a violation (or alleged viola-
tion) of part 4 of this subtitle,
‘‘(B) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid
to the plan against the participant’s accrued benefit
in the plan, and
‘‘(C) if the participant has a spouse at the time
at which the offset is to be made—
‘‘(i) such spouse has consented in writing
to such offset and such consent is witnessed by
a notary public or representative of the plan,
‘‘(ii) such spouse is ordered or required in
such judgment, order, decree, or settlement to
pay an amount to the plan in connection with
a violation of part 4 of this title, or
‘‘(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to re-
ceive the value of the survivor annuity under a
qualified joint and survivor annuity provided
pursuant to section 205(a)(1) and under a
qualified preretirement survivor annuity pro-
vided pursuant to section 205(a)(2), determined
in accordance with paragraph (5).
‘‘(5)(A) The value of the survivor annuity described
in paragraph (4)(C)(iii) shall be determined as if—
‘‘(i) the participant terminated employment on
the date of the offset,
‘‘(ii) there was no offset,
‘‘(iii) the plan permitted retirement only on or
after normal retirement age,
‘‘(iv) the plan provided only the minimum-re-
quired qualified joint and survivor annuity, and
‘‘(v) the amount of the qualified preretirement
survivor annuity under the plan is equal to the
amount of the survivor annuity payable under the
minimum-required qualified joint and survivor annu-
ity.
‘‘(B) For purposes of this paragraph, the term ‘mini-
mum-required qualified joint and survivor annuity’ means
the qualified joint and survivor annuity which is the actu-
arial equivalent of a single annuity for the life of the par-
ticipant and under which the survivor annuity is 50 per-
cent of the amount of the annuity which is payable during
the joint lives of the participant and the spouse.’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to judgments, orders,
and decrees issued, and settlement agreements en-
tered into, on or after the date of enactment of this
Act.
(b) CIVIL PENALTIES FOR BREACH OF FIDUCIARY
RESPONSIBILITY.—
(1) IMPOSITION
AND
AMOUNT
OF
PENALTY
MADE
DISCRETIONARY.—Section 
502(l)(1) 
(29
U.S.C. 1132(l)(1)) is amended—
(A) by striking ‘‘shall’’ and inserting
‘‘may’’, and
(B) by striking ‘‘equal to’’ and inserting
‘‘not greater than’’.
(2) APPLICABLE RECOVERY AMOUNT.—Section
502(l)(2) (29 U.S.C. 1132(l)(2)) is amended to read
as follows:
‘‘(2) For purposes of paragraph (1), the term ‘appli-
cable recovery amount’ means any amount which is recov-
ered from (or on behalf of) any fiduciary or other person
with respect to a breach or violation described in para-
graph (1) on or after the 30th day following receipt by
such fiduciary or other person of written notice from the
Secretary of the violation, whether paid voluntarily or by
order of a court in a judicial proceeding instituted by the
Secretary under subsection (a)(2) or (a)(5). The Secretary
may, in the Secretary’s sole discretion, extend the 30-day
period described in the preceding sentence.’’
(3) OTHER RULES.—Section 502(l) (29 U.S.C.
1132(l)) is amended by adding at the end the follow-
ing new paragraphs:
‘‘(5) A person shall be jointly and severally liable for
the penalty described in paragraph (1) to the same extent
that such person is jointly and severally liable for the ap-
plicable recovery amount on which the penalty is based.
‘‘(6) No penalty shall be assessed under this sub-
section unless the person against whom the penalty is as-
sessed is given notice and opportunity for a hearing with
respect to the violation and applicable recovery amount.’’
(4) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to any breach of
fiduciary responsibility or other violation of part
4 of subtitle B of title I of the Employee Re-
tirement Income Security Act of 1974 occurring
on or after the date of enactment of this Act.
(B) TRANSITION RULE.—In applying the
amendment made by paragraph (2) (relating to
applicable recovery amount), a breach or other
violation occurring before the date of the enact-
ment of this Act which continues after the
180th day after such date (and which may have
been discontinued at any time during its exist-
ence) shall be treated as having occurred after
such date of enactment.
TITLE VI—EXPANDED INDIVID-
UAL RETIREMENT ACCOUNTS
TO INCREASE COVERAGE AND
PORTABILITY
Subtitle A—Retirement Savings
Incentives
SEC. 601. INCREASE IN INCOME LIMITATIONS.
(a) IN GENERAL.—Subparagraph (B) of section
219(g)(3) is amended—
(1) by striking ‘‘$40,000’’ in clause (i) and in-
serting ‘‘$80,000 ($70,000 in the case of taxable
years beginning in 1996, 1997, or 1998)’’, and
(2) by striking ‘‘$25,000’’ in clause (ii) and in-
serting ‘‘$50,000 ($45,000 in the case of taxable
years beginning in 1996, 1997, or 1998)’’.
(b) PHASEOUT OF LIMITATIONS.—Clause (ii) of sec-
tion 219(g)(2)(A) is amended by striking ‘‘$10,000’’ and
inserting ‘‘an amount equal to 10 times the dollar amount
applicable for the taxable year under subsection
(b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 602. INFLATION ADJUSTMENT FOR DEDUCTIBLE
AMOUNT AND INCOME LIMITATIONS.
(a) IN GENERAL.—Section 219 is amended by redes-
ignating subsection (h) as subsection (i) and by inserting
after subsection (g) the following new subsection:
‘‘(h) COST-OF-LIVING ADJUSTMENTS.—
‘‘(1) DEDUCTIBLE AMOUNTS.—In the case of
any taxable year beginning in a calendar year after
1996, the $2,000 amounts under subsections
(b)(1)(A) and (c)(2) shall be increased by an amount
equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1995’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) APPLICABLE
DOLLAR
AMOUNT.—In the
case of any taxable year beginning in a calendar
year after 1999, the applicable dollar amounts under
subsection (g)(3)(B) shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1998’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(3) ROUNDING RULES.—
‘‘(A) 
DEDUCTION
AMOUNTS.—If 
any
amount after adjustment under paragraph (1)
is not a multiple of $500, such amount shall be
rounded to the next lowest multiple of $500.
‘‘(B) APPLICABLE DOLLAR AMOUNTS.—If
any amount after adjustment under paragraph
(2) is not a multiple of $5,000, such amount
shall be rounded to the next lowest multiple of
$5,000.’’
(b) CONFORMING AMENDMENTS.—
(1) Clause (i) of section 219(c)(2)(A) is amend-
ed to read as follows:
‘‘(i) the sum of $250 and the dollar
amount in effect for the taxable year under
subsection (b)(1)(A), or’’.
(2) Section 408(a)(1) is amended by striking
‘‘in excess of $2,000 on behalf of any individual’’
and inserting ‘‘on behalf of any individual in excess
of the amount in effect for such taxable year under
section 219(b)(1)(A)’’.
(3) Section 408(b)(2)(B) is amended by strik-
ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in
effect under section 219(b)(1)(A)’’.
(4) Subparagraph (A) of section 408(d)(5) is
amended by striking ‘‘$2,250’’ and inserting ‘‘the
dollar amount in effect for the taxable year under
section 219(c)(2)(A)(i)’’.
(5) Section 408(j) is amended by striking
‘‘$2,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 603. COORDINATION OF IRA DEDUCTION LIMIT WITH
ELECTIVE DEFERRAL LIMIT.
(a) IN GENERAL.—Section 219(b) (relating to maxi-
mum amount of deduction) is amended by adding at the
end the following new paragraph:
‘‘(4) COORDINATION
WITH
ELECTIVE
DEFER-
RAL LIMIT.—The amount determined under para-
graph (1) or subsection (c)(2) with respect to any
individual for any taxable year shall not exceed the
excess (if any) of—
‘‘(A) the limitation applicable for the tax-
able year under section 402(g)(1), over
‘‘(B) the elective deferrals (as defined in
section 402(g)(3)) of such individual for such
taxable year.’’
(b) CONFORMING AMENDMENT.—Section 219(c) is
amended by adding at the end the following new para-
graph:
‘‘(3) CROSS REFERENCE.—
‘‘For reduction in paragraph (2) amount, see sub-
section (b)(4).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 604. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE
INDIVIDUAL RETIREMENT ACCOUNTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to pension, profit-sharing, stock
bonus plans, etc.) is amended by inserting after section
408 the following new section:
‘‘SEC. 408A. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.
‘‘(a) GENERAL RULE.—Except as provided in this
chapter, a special individual retirement account shall be
treated for purposes of this title in the same manner as
an individual retirement plan.
‘‘(b) 
SPECIAL
INDIVIDUAL
RETIREMENT
AC-
COUNT.—For purposes of this title, the term ‘special indi-
vidual retirement account’ means an individual retirement
plan which is designated at the time of establishment of
the plan as a special individual retirement account.
‘‘(c) TREATMENT OF CONTRIBUTIONS.—
‘‘(1) NO DEDUCTION ALLOWED.—No deduction
shall be allowed under section 219 for a contribution
to a special individual retirement account.
‘‘(2) CONTRIBUTION
LIMIT.—The aggregate
amount of contributions for any taxable year to all
special individual retirement accounts maintained for
the benefit of an individual shall not exceed the ex-
cess (if any) of—
‘‘(A) the maximum amount allowable as a
deduction under section 219 with respect to
such individual for such taxable year, over
‘‘(B) the aggregate amount of contribu-
tions for such taxable year to all individual re-
tirement plans (other than special individual re-
tirement accounts) maintained for the benefit of
the individual.
‘‘(3) SPECIAL RULES FOR QUALIFIED TRANS-
FERS.—
‘‘(A) IN GENERAL.—No rollover contribu-
tion may be made to a special individual retire-
ment account unless it is a qualified transfer.
‘‘(B) LIMIT NOT TO APPLY.—The limita-
tion under paragraph (2) shall not apply to a
qualified transfer to a special individual retire-
ment account.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, any amount paid or distributed out of a
special individual retirement account shall not be in-
cluded in the gross income of the distributee.
‘‘(2) EXCEPTION FOR EARNINGS ON CONTRIBU-
TIONS HELD LESS THAN 5 YEARS.—
‘‘(A) IN GENERAL.—Any amount distrib-
uted out of a special individual retirement ac-
count which consists of earnings allocable to
contributions made to the account during the 5-
year period ending on the day before such dis-
tribution shall be included in the gross income
of the distributee for the taxable year in which
the distribution occurs.
‘‘(B) ORDERING RULE.—
‘‘(i) FIRST-IN, FIRST-OUT
RULE.—
Distributions from a special individual re-
tirement account shall be treated as having
been made—
‘‘(I) first from the earliest con-
tribution 
(and 
earnings 
allocable
thereto) remaining in the account at
the time of the distribution, and
‘‘(II) then from other contribu-
tions (and earnings allocable thereto)
in the order in which made.
‘‘(ii) ALLOCATIONS
BETWEEN
CON-
TRIBUTIONS AND EARNINGS.—Any portion
of a distribution allocated to a contribution
(and earnings allocable thereto) shall be
treated as allocated first to the earnings
and then to the contribution.
‘‘(iii) ALLOCATION
OF
EARNINGS.—
Earnings shall be allocated to a contribu-
tion in such manner as the Secretary may
prescribe.
‘‘(iv) AGGREGATIONS
OF
CONTRIBU-
TIONS.—Except as provided by the Sec-
retary, for purposes of this subpara-
graph—
‘‘(I) all contributions made dur-
ing the same taxable year may be
treated as 1 contribution, and
‘‘(II) all contributions made be-
fore the first day of the 5-year period
ending on the day before any distribu-
tion may be treated as 1 contribution.
‘‘(C) CROSS REFERENCE.—
‘‘For additional tax for early withdrawal, see sec-
tion 72(t).
‘‘(3) QUALIFIED TRANSFER.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall
not apply to any distribution which is trans-
ferred in a qualified transfer to another special
individual retirement account.
‘‘(B) CONTRIBUTION
PERIOD.—For pur-
poses of paragraph (2), the special individual
retirement account to which any contributions
are transferred shall be treated as having held
such contributions during any period such con-
tributions were held (or are treated as held
under this subparagraph) by the special individ-
ual retirement account from which transferred.
‘‘(4) SPECIAL
RULES
RELATING
TO
CERTAIN
TRANSFERS.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of law, in the case of a qualified
transfer to a special individual retirement ac-
count from an individual retirement plan which
is not a special individual retirement account—
‘‘(i) there shall be included in gross
income any amount which, but for the
qualified transfer, would be includible in
gross income, but
‘‘(ii) section 72(t) shall not apply to
such amount.
‘‘(B) TIME FOR INCLUSION.—In the case
of any qualified transfer which occurs before
January 1, 1998, any amount includible in
gross income under subparagraph (A) with re-
spect to such contribution shall be includible
ratably over the 4-taxable year period beginning
in the taxable year in which the amount was
paid or distributed out of the individual retire-
ment plan. The amount of such qualified trans-
fer taken into account for purposes of section
4980A(c) shall be taken into account ratably
over such period.
‘‘(C) ADDITIONAL REPORTING.—A trustee
of an individual retirement plan shall include
such additional information in any report re-
quired under section 408(i) as the Secretary
may require to insure that amounts described
in subparagraph (B) are included in gross in-
come for the appropriate taxable year.
‘‘(e) QUALIFIED TRANSFER.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified trans-
fer’ means a transfer to a special individual retire-
ment account from another such account or from an
individual retirement plan but only if such transfer
meets the requirements of section 408(d)(3).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—A transfer otherwise
described in paragraph (1) shall not be treated
as a qualified transfer if the taxpayer’s adjusted
gross income for the taxable year of the trans-
fer exceeds the sum of—
‘‘(i) the applicable dollar amount, plus
‘‘(ii) the dollar amount applicable for
the 
taxable 
year 
under 
section
219(g)(2)(A)(ii).
This subparagraph shall not apply to a transfer
from a special individual retirement account to
another special individual retirement account.
‘‘(B) TRANSITION RULE.—In the case of a
transfer before January 1, 1999, the dollar lim-
itation under subparagraph (A) shall be
$100,000 in the case of a married individual fil-
ing a joint return, zero in the case of a married
individual filing a separate return, and $70,000
in any other case.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, the terms ‘adjusted gross income’ and ‘ap-
plicable dollar amount’ have the meanings given
such terms by section 219(g)(3), except that ad-
justed gross income shall be determined by taking
into account the deduction under section 219 and
not taking into account any transfer to which para-
graph (2) applies.’’
(b) ADDITIONAL TAX ON EARLY DISTRIBUTIONS.—
Section 72(t) is amended by adding at the end the follow-
ing new paragraph:
‘‘(6) RULES RELATING TO SPECIAL INDIVIDUAL
RETIREMENT ACCOUNTS.—In the case of a special
individual retirement account under section 408A—
‘‘(A) this subsection shall only apply to
distributions out of such account which consist
of earnings allocable to contributions made to
the account during the 5-year period ending on
the day before such distribution, and
‘‘(B) paragraph (2)(A)(i) shall not apply to
any distribution described in subparagraph
(A).’’
(c) EXCESS CONTRIBUTIONS.—Section 4973(b) is
amended—
(1) by inserting ‘‘, or a qualified transfer de-
scribed in section 408A(e)’’ after ‘‘408(d)(3)’’ in
paragraph (1)(A), and
(2) by adding at the end the following new sen-
tence: ‘‘For purposes of paragraphs (1)(B) and
(2)(C), the amount allowable as a deduction under
section 219 shall be computed without regard to sec-
tion 408A.’’
(d) REPORTING.—Section 408(i) is amended by strik-
ing ‘‘under regulations’’ and ‘‘in such regulations’’ each
place such terms appear.
(e) CONFORMING AMENDMENT.—The table of sec-
tions for subpart A of part I of subchapter D of chapter
1 is amended by inserting after the item relating to section
408 the following new item:
‘‘Sec. 408A. Special individual retirement accounts.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
Subtitle B—Distributions and
Investments
SEC. 611. DISTRIBUTIONS FROM IRAS MAY BE USED WITH-
OUT ADDITIONAL TAX TO PURCHASE FIRST
HOMES, TO PAY HIGHER EDUCATION OR FI-
NANCIALLY 
DEVASTATING 
MEDICAL 
EX-
PENSES, OR BY THE UNEMPLOYED.
(a) 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 subpara-
graph:
‘‘(D) 
DISTRIBUTIONS
FROM
CERTAIN
PLANS FOR FIRST HOME PURCHASES OR EDU-
CATIONAL EXPENSES.—Distributions to an in-
dividual from an individual retirement plan—
‘‘(i) which are qualified first-time
homebuyer distributions (as defined in
paragraph (7)); or
‘‘(ii) to the extent such distributions
do not exceed the qualified higher edu-
cation expenses (as defined in paragraph
(8)) of the taxpayer for the taxable year.’’
(b) FINANCIALLY
DEVASTATING
MEDICAL
EX-
PENSES.—
(1) 
IN
GENERAL.—Section 
72(t)(3)(A) 
is
amended by striking ‘‘(B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND AN-
CESTORS
TREATED
AS
DEPENDENTS
AND
LONG-
TERM
CARE
SERVICES
TREATED
AS
MEDICAL
CARE.—Subparagraph (B) of section 72(t)(2) is
amended by striking ‘‘medical care’’ and all that fol-
lows 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 an individual re-
tirement plan—
‘‘(I) by treating such employee’s
dependents as including all children,
grandchildren, and ancestors of the
employee or such employee’s spouse
and
‘‘(II) by treating qualified long-
term care services (as defined in para-
graph (9)) as medical care for pur-
poses of this subparagraph.’’
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(C)’’ and inserting ‘‘, (C), or (D)’’.
(c) DEFINITIONS.—Section 72(t), as amended by this
Act, is amended by adding at the end the following new
paragraphs:
‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For 
purposes 
of 
paragraph
(2)(D)(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 or the spouse, child (as defined in sec-
tion 151(c)(3)), or grandchild of such individ-
ual.
‘‘(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 3-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).
In the case of an individual described in
section 143(i)(1)(C) for any year, an own-
ership interest shall not include any inter-
est under a contract of deed described in
such section. An individual who loses an
ownership interest in a principal residence
incident to a divorce or legal separation is
deemed for purposes of this subparagraph
to have had no ownership interest in such
principal residence within the period re-
ferred to in subclause (II).
‘‘(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.—Any portion of any distribution
from any individual retirement plan which fails
to meet the requirements of subparagraph (A)
solely by reason of a delay or cancellation of the
purchase or construction of the residence may
be contributed to an individual retirement plan
as provided in section 408(d)(3)(A)(i) (deter-
mined by substituting ‘120 days’ for ‘60 days’
in such section), except that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such portion, and
‘‘(ii) such portion shall not be taken
into account in determining whether sec-
tion 408(d)(3)(B) applies to any other
amount.
‘‘(8) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of paragraph (2)(D)(ii)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition and
fees required for the enrollment or attendance
of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse,
‘‘(iii) a dependent of the taxpayer
with respect to whom the taxpayer is al-
lowed a deduction under section 151, or
‘‘(iv) the taxpayer’s child (as defined
in section 151(c)(3)) or grandchild,
as an eligible student at an institution of higher
education.
‘‘(B) EXCEPTIONS.—The term ‘qualified
higher education expenses’ does not include—
‘‘(i) expenses with respect to any
course or other education involving sports,
games, or hobbies, unless such expenses—
‘‘(I) are part of a degree pro-
gram, or
‘‘(II) are deductible under this
chapter without regard to this section;
or
‘‘(ii) any student activity fees, athletic
fees, insurance expenses, or other expenses
unrelated to a student’s academic course of
instruction.
‘‘(C) 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.
‘‘(D) ELIGIBLE STUDENT.—For purposes
of subparagraph (A), the term ‘eligible student’
means a student who—
‘‘(i) meets the requirements of section
484(a)(1) of the Higher Education Act of
1965 (20 U.S.C. 1091(a)(1)), as in effect
on the date of the enactment of this sec-
tion, and
‘‘(ii)(I) is carrying at least one-half
the normal full-time work load for the
course of study the student is pursuing, as
determined by the institution of higher
education, or
‘‘(II) is enrolled in a course which en-
ables the student to improve the student’s
job skills or to acquire new job skills.
‘‘(E) 
INSTITUTION
OF
HIGHER
EDU-
CATION.—The term ‘institution of higher edu-
cation’ means an institution which—
‘‘(i) is described in section 481 of the
Higher Education Act of 1965 (20 U.S.C.
1088), as in effect on the date of the en-
actment of this section, and
‘‘(ii) is eligible to participate in pro-
grams under title IV of such Act.
‘‘(9) QUALIFIED LONG-TERM CARE SERVICES.—
For purposes of paragraph (2)(B)—
‘‘(A) IN
GENERAL.—The term ‘qualified
long-term care services’ means necessary diag-
nostic, curing, mitigating, treating, preventive,
therapeutic, and rehabilitative services, and
maintenance and personal care services (wheth-
er performed in a residential or nonresidential
setting) which—
‘‘(i) are required by an individual dur-
ing any period the individual is an inca-
pacitated individual (as defined in subpara-
graph (B)),
‘‘(ii) have as their primary purpose—
‘‘(I) the provision of needed as-
sistance with 1 or more activities of
daily living (as defined in subpara-
graph (C)), or
‘‘(II) protection from threats to
health and safety due to severe cog-
nitive impairment, and
‘‘(iii) are provided pursuant to a con-
tinuing plan of care prescribed by a li-
censed professional (as defined in subpara-
graph (D)).
‘‘(B) INCAPACITATED
INDIVIDUAL.—The
term ‘incapacitated individual’ means any indi-
vidual who—
‘‘(i) is unable to perform, without sub-
stantial assistance from another individual
(including assistance involving cueing or
‘‘(ii) any other individual who meets
such requirements as may be prescribed by
the Secretary after consultation with the
Secretary of Health and Human Services.
‘‘(E) 
CERTAIN
SERVICES
NOT
IN-
CLUDED.—The term ‘qualified long-term care
services’ shall not include any services provided
to an individual—
‘‘(i) by a relative (directly or through
a partnership, corporation, or other entity)
unless the relative is a licensed professional
with respect to such services, or
‘‘(ii) by a corporation or partnership
which is related (within the meaning of
section 267(b) or 707(b)) to the individual.
For purposes of this subparagraph, the term
‘relative’ means an individual bearing a rela-
tionship to the individual which is described in
paragraphs (1) through (8) of section 152(a).’’
(d) DISTRIBUTIONS FOR CERTAIN UNEMPLOYED IN-
DIVIDUALS.—Paragraph (2) of section 72(t) is amended
by adding at the end the following new subparagraph:
‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN-
DIVIDUALS.—A distribution from an individual
retirement plan to an individual after separa-
tion from employment, if—
‘‘(i) such individual has received un-
employment compensation for 12 consecu-
tive weeks under any Federal or State un-
employment compensation law by reason of
such separation, and
‘‘(ii) such distributions are made dur-
ing any taxable year during which such un-
employment compensation is paid or the
succeeding taxable year.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions after
December 31, 1995.
SEC. 612. CONTRIBUTIONS MUST BE HELD AT LEAST 5
YEARS IN CERTAIN CASES.
(a) IN GENERAL.—Section 72(t), as amended by this
Act, is amended by adding at the end the following new
paragraph:
‘‘(10) CERTAIN CONTRIBUTIONS MUST BE HELD
5 YEARS.—
‘‘(A) IN
GENERAL.—Paragraph (2)(A)(i)
shall not apply to any amount distributed out
of an individual retirement plan (other than a
special individual retirement account) which is
allocable to contributions made to the plan dur-
ing the 5-year period ending on the date of
such distribution (and earnings on such con-
tributions).
‘‘(B) ORDERING RULE.—For purposes of
this paragraph—
‘‘(i) FIRST-IN, FIRST-OUT
RULE.—
Distributions shall be treated as having
been made—
‘‘(I) first from the earliest con-
tribution 
(and 
earnings 
allocable
thereto) remaining in the account at
the time of the distribution, and
‘‘(II) then from other contribu-
tions (and earnings allocable thereto)
in the order in which made.
‘‘(ii) ALLOCATION
OF
EARNINGS.—
Earnings shall be allocated to contribu-
tions in such manner as the Secretary may
prescribe.
‘‘(iii) AGGREGATIONS
OF
CONTRIBU-
TIONS.—Except as provided by the Sec-
retary, for purposes of this subpara-
graph—
‘‘(I) all contributions made dur-
ing the same taxable year may be
treated as 1 contribution, and
‘‘(II) all contributions made be-
fore the first day of the 5-year period
ending on the day before any distribu-
tion may be treated as 1 contribution.
‘‘(C) SPECIAL RULE FOR ROLLOVERS.—
‘‘(i) PENSION PLANS.—Subparagraph
(A) shall not apply to distributions out of
an individual retirement plan which are al-
locable to rollover contributions to which
section 402(c), 403(a)(4), or 403(b)(8) ap-
plied.
‘‘(ii) CONTRIBUTION
PERIOD.—For
purposes of subparagraph (A), amounts
shall be treated as having been held by a
plan during any period such contributions
were held (or are treated as held under
this clause) by any individual retirement
plan from which transferred.
‘‘(D) SPECIAL ACCOUNTS.—For rules ap-
plicable to special individual retirement ac-
counts under section 408A, see paragraph (8).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to contributions (and earnings allo-
cable thereto) which are made after December 31, 1995.
SEC. 613. INVESTMENTS IN QUALIFIED STATE PREPAID
TUITION PROGRAMS.
(a) IN GENERAL.—Section 408, as amended by sec-
tion 1101, is amended by redesignating subsection (q) as
subsection (r) and by inserting after subsection (p) the
following new subsection:
‘‘(q) SPECIAL RULES FOR QUALIFIED STATE PRE-
PAID TUITION PROGRAM INSTRUMENTS.—
‘‘(1) IN GENERAL.—In the case of a qualified
State prepaid tuition program instrument to which
this subsection applies—
‘‘(A) the use of all or part of the assets of
an individual retirement plan to purchase such
an instrument shall be treated for purposes of
this section as for the exclusive benefit of the
individual for whom the plan was established or
the individual’s beneficiaries, and
‘‘(B) to the extent such instrument is con-
verted into tuition and fees as provided in para-
graph (3)(B)(i), such individual (or such bene-
ficiaries) shall be treated—