justed 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 referred to in paragraph (2)(B) as
adjusted under paragraph (1) 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. 203. 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.
PART II—NONDEDUCTIBLE TAX-FREE
IRA’S
SEC. 211. 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 amount so allowed.
‘‘(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
by regulations prescribe.
‘‘(iv) 
CONTRIBUTIONS
IN
SAME
YEAR.—Except as provided in regulations,
all contributions made during the same
taxable year may be treated as 1 contribu-
tion for purposes of this subparagraph.
‘‘(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, 1997, 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.
‘‘(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 transfer otherwise de-
scribed in paragraph (1) shall not be treated as a
qualified transfer if the taxpayer’s adjusted gross in-
come for the taxable year of the transfer exceeds the
sum of—
‘‘(A) the applicable dollar amount, plus
‘‘(B) the dollar amount applicable for the
taxable year under section 219(g)(2)(A)(ii).
This paragraph shall not apply to a transfer from a
special individual retirement account to another spe-
cial individual retirement account.
‘‘(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 subpara-
graph (A)(ii) thereof shall be applied without regard
to the phrase ‘or the deduction allowable under this
section’.’’
(b) EARLY WITHDRAWAL PENALTY.—Section 72(t)
is amended by adding at the end the following new para-
graph:
‘‘(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 by adding at the end the following new sentence:
‘‘For purposes of paragraphs (1)(B) and (2)(C), the
amount allowable as a deduction under section 219 shall
be computed without regard to section 408A.’’
(d) 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.’’
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 (B).’’
(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 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 (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 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 
section
408(d)(3)(A)(i) (determined by substituting
‘120 days’ for ‘60 days’ in such section), except
that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
‘‘(ii) such amount shall not be taken
into account in determining whether sec-
tion 408(d)(3)(A)(i) 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 (as defined in paragraphs (1)(D) and
(2) of section 220(c)).
‘‘(B) EXCEPTIONS.—The term ‘qualified
higher education expenses’ does not include ex-
penses described in subparagraphs (B) and (C)
of section 220(c)(1).
‘‘(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.
‘‘(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
substantial supervision), at least 2 activi-
ties of daily living as defined in subpara-
graph (C), or
‘‘(ii) has severe cognitive impairment
as defined by the Secretary in consultation
with the Secretary of Health and Human
Services.
Such term shall not include any individual oth-
erwise meeting the requirements of the preced-
ing sentence unless a licensed professional with-
in the preceding 12-month period has certified
that such individual meets such requirements.
‘‘(C) ACTIVITIES OF DAILY LIVING.—Each
of the following is an activity of daily living:
‘‘(i) Eating.
‘‘(ii) Toileting.
‘‘(iii) Transferring.
‘‘(iv) Bathing.
‘‘(v) Dressing.
‘‘(D) 
LICENSED
PROFESSIONAL.—The
term ‘licensed professional’ means—
‘‘(i) a physician or registered profes-
sional nurse, 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) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN
UNEMPLOYED INDIVIDUALS.—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. 222. 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, distributions shall be treated as
having been made—
‘‘(i) first from the earliest contribu-
tion (and earnings allocable thereto) re-
maining in the account at the time of the
distribution, and
‘‘(ii) then from other contributions
(and earnings allocable thereto) in the
order in which made.
Earnings shall be allocated to contributions in
such manner as the Secretary may prescribe.
‘‘(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.
Æ
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