‘‘(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, 1996.
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—
‘‘(i) for purposes of subsection (d) as
having received a distribution in an
amount equal to such tuition and fees (as
of the time of the conversion), and
‘‘(ii) 
for 
purposes 
of 
section
72(t)(2)(D)(ii), as having incurred quali-
fied higher education expenses to the ex-
tent such tuition and fees otherwise con-
stitute such expenses.
‘‘(2) INSTRUMENTS TO WHICH SUBSECTION AP-
PLIES.—To the extent provided by the Secretary,
this subsection shall apply to any qualified State
prepaid tuition program instrument if—
‘‘(A) the instrument is purchased by the
individual retirement plan directly from the
State or an instrumentality thereof, and
‘‘(B) the beneficiary designated under the
instrument is the taxpayer, the taxpayer’s
spouse, a dependent of the taxpayer with re-
spect to whom the taxpayer is allowed a deduc-
tion under section 151, or the taxpayer’s child
(as defined in section 151(c)(3)) or grandchild.
‘‘(3) QUALIFIED STATE PREPAID TUITION PRO-
GRAM
INSTRUMENT.—For purposes of this sub-
section, the term ‘qualified State prepaid tuition pro-
gram instrument’ means an instrument which—
‘‘(A) is issued under a program established
and maintained by a State, and
‘‘(B) which may only be—
‘‘(i) converted into a percentage (de-
termined as of the time of purchase) of
tuition and fees which would constitute
qualified higher education expenses (within
the meaning of section 72(t)(8)) if the ben-
eficiary designated under the instrument
enrolls in or attends an institution of high-
er education specified in the instrument as
an eligible student, or
‘‘(ii) redeemed for an amount not less
than the purchase price (less any reason-
able administrative fees) if the instrument
is not converted as provided in clause (i).
‘‘(4) DEFINITIONS.—For purposes of this sub-
section, the terms ‘institution of higher education’
and ‘eligible student’ have the meanings given such
terms by section 72(t)(8).’’.
(b) 
EXEMPTION
FROM
PROHIBITED
TRANS-
ACTIONS.—Section 4975(d) is amended by striking ‘‘or’’
at the end of paragraph (14), by striking the period at
the end of paragraph (15) and inserting ‘‘; or’’, and by
inserting after paragraph (15) the following new para-
graph:
‘‘(16) any purchase of a qualified State prepaid
tuition program instrument to which section 408(q)
applies.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
Æ