(B) by striking ‘‘$25,000’’ and inserting
‘‘$75,000’’.
(2) CROSS REFERENCE TO INFLATION ADJUST-
MENT.—Paragraph (3) of section 219(g) of such
Code is amended by adding at the end the following
new subparagraph:
‘‘(C) CROSS REFERENCE.—
‘‘For inflation adjustment of dollar amounts set
forth in subparagraph (B), see subsection (f)(8).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 
4. 
WITHHOLDING, 
CONTRIBUTION 
LIMITS, 
AND
MATCHING CONTRIBUTION NONDISCRIMINA-
TION REQUIREMENTS FOR 401(k) PLANS.
(a) INAPPLICABILITY OF WITHHOLDING REQUIRE-
MENT TO 401(k) DISTRIBUTIONS.—
(1) IN
GENERAL.—Paragraph (3) of section
3405(c) of the Internal Revenue Code of 1986 (re-
lating to eligible rollover distribution) is amended by
striking the period at the end and inserting the fol-
lowing: ‘‘, except that such term shall not include a
distribution from a qualified cash or deferred ar-
rangement (as defined in section 401(k)).’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to distributions made
after December 31, 1996.
(b) INCREASE IN CONTRIBUTION LIMITS FOR 401(k)
PLANS.—
(1) IN
GENERAL.—Paragraph (1) of section
402(g) of such Code (relating to limitation on exclu-
sion for elective deferrals) is amended by striking
‘‘$7,000’’ and inserting ‘‘$20,000’’.
(2) CONFORMING AMENDMENT.—Paragraph (5)
of section 402(g) of such Code (relating to cost-of-
living adjustment) is amended by striking ‘‘$7,000’’
and inserting ‘‘$20,000’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1996.
(c) ALTERNATIVE METHODS FOR MEETING SECTION
401(k) Nondiscrimination Test and Nondiscrimination
Test for Matching Contributions.—
(1) 
SECTION
401(k) 
NONDISCRIMINATION
TEST.—Subsection (k) of section 401 of such Code
(relating to cash or deferred arrangements) is
amended by adding at the end the following new
paragraph:
‘‘(13) ADDITIONAL ALTERNATIVE METHOD OF
MEETING NONDISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if—
‘‘(i) under the arrangement, the em-
ployer makes matching contributions on
behalf of each employee in an amount
equal to a percentage of the contributions
and elective deferrals of such employee,
‘‘(ii) the same such percentage applies
to all employees of the employer, and
‘‘(iii) not less than biannually, each
employee eligible to participate under the
arrangement is given written notice of the
employee’s rights and obligations under the
arrangement which meets the requirements
of clauses (i) and (ii) of paragraph
(12)(D).
‘‘(B) SPECIAL
RULES
REGARDING
IN-
CREASE
AND
DECREASE
IN
MATCHING
CON-
TRIBUTIONS.—
‘‘(i) INCREASE IN RATE OF MATCHING
CONTRIBUTIONS.—An arrangement shall
not be treated as meeting the requirement
of subparagraph (A)(ii) if the rate of the
employer’s 
matching 
contributions 
in-
creases as the rate of an employee’s con-
tributions or elective deferrals increases.
‘‘(ii) 
PERMISSIBLE
DECREASE
AS
ELECTIVE
DEFERRALS
AND
CONTRIBU-
TIONS
INCREASE.—An arrangement shall
not fail to be treated as meeting the re-
quirement of subparagraph (A)(ii) by rea-
son of a decrease in the rate of the employ-
er’s matching contributions as the rate of
the employee’s contributions or elective de-
ferrals increases, if the same such rate of
decrease applies to all employees of the
employer.’’
(2) NONDISCRIMINATION TEST FOR MATCHING
CONTRIBUTIONS.—Subsection (m) of section 401 of
such Code is amended by redesignating paragraph
(12) as paragraph (13) and by inserting after para-
graph (11) the following new paragraph:
‘‘(12) ADDITIONAL ALTERNATIVE METHOD FOR
CASH OR DEFERRED ARRANGEMENTS.—A qualified
cash or deferred arrangement (as defined in sub-
section (k)) shall be treated as meeting the require-
ments of paragraph (2) with respect to matching
contributions if the arrangement meets the require-
ments of subsection (k)(13).’’
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to years beginning after
December 31, 1996.
SEC. 5. INHERITED IRAS AND INHERITED 401(k) AMOUNTS.
(a) EXCLUSION OF INHERITED IRAS AND CERTAIN
INHERITED 401(k) AMOUNTS FROM GROSS ESTATE.—
(1) IN GENERAL.—Section 2039 of the Internal
Revenue Code of 1986 is amended by adding at the
end the following new subsection:
‘‘(c) EXCLUSION OF INDIVIDUAL RETIREMENT AC-
COUNTS AND CERTAIN INHERITED 401(k) AMOUNTS.—
Notwithstanding any other provision of this section or of
any other provision of law, there shall be excluded from
the value of the gross estate any amount receivable by any
beneficiary (other than the executor) under—
‘‘(1) an individual retirement plan of the dece-
dent, or
‘‘(2) a qualified cash or deferred arrangement
(as defined in section 401(k)) of the decedent, if the
requirements of section 408(o)(2)(B)(iii) are met
with respect to such amount.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to estates of decedents
dying after December 31, 1996.
(b) BENEFICIARY PERMITTED TO HOLD IRA RE-
CEIVED FROM DECEDENT.—
(1) IN
GENERAL.—Paragraph (9) of section
401(a) of such Code (relating to required distribu-
tions) is amended by adding at the end the following
new clause:
‘‘(v) EXCEPTION
FOR
DESIGNATED
BENEFICIARY OF INDIVIDUAL RETIREMENT
PLAN.—Notwithstanding clauses (iii) and
(iv), if any portion of the interest in an in-
dividual retirement plan is payable to (or
for the benefit of) a designated beneficiary
by reason of the death of another individ-
ual, the date on which distributions from
such plan are required to begin under this
paragraph shall be determined by applying
this paragraph as if such beneficiary were
the employee.’’
(2) CONFORMING AMENDMENT.—Paragraph (3)
of section 408(d) of such Code is amended by strik-
ing subparagraph (C) (relating to denial of rollover
treatment for inherited accounts, etc.).
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts payable
after, and acquisitions after, December 31, 1996.
(c) CONTRIBUTION OF INHERITED 401(k) AMOUNTS
TO IRA.—
(1) INCREASE OF NONDEDUCTIBLE LIMIT TO
ALLOW
CONTRIBUTION
OF
INHERITED
401(k)
AMOUNTS.—Subparagraph (B) of section 408(o)(2)
of such Code (relating to nondeductible limit) is
amended by adding at the end the following new
clause:
‘‘(iii) INHERITED 401(k) AMOUNTS.—
The nondeductible limit for the taxable
year shall be increased by the amount re-
ceived during the taxable year by the indi-
vidual under a qualified cash or deferred
arrangement (as defined in section 401(k))
of a decedent, if such amount is paid into
an individual retirement plan for the bene-
fit of such individual not later than the
60th day after the date of such receipt.’’
(2) EXCLUSION FROM GROSS INCOME IF INHER-
ITED 401(k) AMOUNT CONTRIBUTED TO IRA .—Sub-
section (m) of section 72 of such Code (relating to
special rules applicable to employee annuities and
distributions under employee plans) is amended by
adding at the end the following new paragraph:
‘‘(11) CONTRIBUTION
OF
INHERITED
401(k)
AMOUNTS TO IRAS.—No amount shall be included in
gross income under this section by reason of an
amount received during the taxable year by the indi-
vidual under a qualified cash or deferred arrange-
ment (as defined in section 401(k)) of a decedent,
if the requirements of section 408(o)(2)(B)(iii) are
met with respect to such amount.’’
(3) CONFORMING AMENDMENT.—Subsection (b)
of section 4973 of such Code (relating to excess con-
tributions) is amended by adding at the end the fol-
lowing: ‘‘For purposes of paragraph (1)(B), the
amount allowable as a deduction under section 219
shall be increased by the amount of the increase in
the nondeductible limit for the taxable year by rea-
son of section 408(o)(2)(B)(iii).’’
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts received
after December 31, 1996.
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