year in which such distribution is received
by reason of the exclusion under paragraph
(1), and
‘‘(ii) interest on the amount of such
reduction for the repayment period com-
puted at the prime rate and compounded
annually.
‘‘(F) PRIME RATE.—For purposes of this
paragraph, the term ‘prime rate’ means the av-
erage predominant prime rate quoted by com-
mercial banks to large business, as determined
by the Board of Governors of the Federal Re-
serve System.
‘‘(3) QUALIFIED DISTRIBUTION.—For purposes
of this paragraph, the term ‘qualified distribution’
means any distributions to an individual from an in-
dividual retirement plan—
‘‘(A) if such distributions are qualified
first-time homebuyer distributions, or
‘‘(B) to the extent such distributions do
not exceed the qualified higher education ex-
penses of the taxpayer for the taxable year in
which received.
The term ‘qualified distribution’ shall not include
any distribution to the extent such distribution re-
duces the balance of the amounts in individual re-
tirement plans of the taxpayer below $1,000.
‘‘(4) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For purposes of this subsection—
‘‘(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, or grandchild of
such individual.
‘‘(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 paragraph:
‘‘(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 (a)(6), (h), or
(k) of section 1034 did not suspend
the running of any period of time
specified in section 1034 with respect
to such individual on the day before
the date the distribution is applied
pursuant to subparagraph (A)(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.—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 subsection
(d)(3)(A)(i) (determined by substituting ‘120
days’ for ‘60 days’ in such section), except
that—
‘‘(i) subsection (d)(3)(B) shall not be
applied to such contribution, and
‘‘(ii) such amount shall not be taken
into account in determining whether sub-
section (d)(3)(A)(i) applies to any other
amount.
‘‘(5) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of this subsection:
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) the taxpayer’s child (as defined
in section 151(c)(3)) or grandchild,
at an eligible educational institution (as defined
in section 135(c)(3)).
‘‘(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.
‘‘(6) RECONTRIBUTION
OF
QUALIFIED
DIS-
TRIBUTIONS.—
‘‘(A) IN
GENERAL.—If an individual re-
ceived a qualified distribution, such individual
shall make required recontributions to an indi-
vidual retirement plan in the manner provided
in this paragraph.
‘‘(B) 
METHOD
OF
MAKING
RECON-
TRIBUTION.—Any required recontribution—
‘‘(i) shall be made during the repay-
ment period for the qualified distribution,
‘‘(ii) shall not exceed the required re-
payment amount reduced by any prior
recontribution under this paragraph with
respect to such distribution, and
‘‘(iii) shall be made by making a pay-
ment in cash for the benefit of such indi-
vidual to an individual retirement plan.
An individual making a required recontribution
under this paragraph shall designate (in the
manner prescribed by the Secretary) such con-
tribution as a required recontribution under
this paragraph and shall specify the qualified
distribution 
in 
respect 
of 
which 
such
recontribution is being made.
‘‘(C) TREATED AS ROLLOVER CONTRIBU-
TION.—For purposes of this title, any required
recontribution under this paragraph shall be
treated as a rollover contribution described in
subsection (d)(3).
‘‘(7) OTHER SPECIAL RULES.—
‘‘(A) BASIS RULES NOT AFFECTED.—The
tax treatment under this chapter of any dis-
tribution (other than a qualified distribution)