extension thereof on or after such date of 
the enactment); or 
(ii) January 1, 2006; or 
(B) January 1, 2008. 
(3) SERVICE REQUIRED.—With respect to any 
plan, the amendments made by this section shall not 
apply to any employee before the date that such em-
ployee has 1 hour of service under such plan in any 
plan year to which the amendments made by this 
section apply. 
SEC. 204. ALLOW ROLLOVERS BY NONSPOUSE BENE-
FICIARIES OF CERTAIN RETIREMENT PLAN 
DISTRIBUTIONS. 
(a) IN GENERAL.— 
(1) QUALIFIED PLANS.—Section 402(c) of the 
Internal Revenue Code of 1986 (relating to rollovers 
from exempt trusts) is amended by adding at the 
end the following new paragraph: 
‘‘(11) DISTRIBUTIONS
TO
INHERITED
INDI-
VIDUAL RETIREMENT PLAN OF NONSPOUSE BENE-
FICIARY.— 
‘‘(A) IN GENERAL.—If, with respect to any 
portion of a distribution from an eligible retire-
ment plan of a deceased employee, a direct 
trustee-to-trustee transfer is made to an indi-
vidual retirement plan described in clause (i) or 
(ii) of paragraph (8)(B) established for the pur-
poses of receiving the distribution on behalf of 
an individual who is a designated beneficiary 
(as defined by section 401(a)(9)(E)) of the em-
ployee and who is not the surviving spouse of 
the employee— 
‘‘(i) the transfer shall be treated as an 
eligible rollover distribution for purposes of 
this subsection, 
‘‘(ii) the individual retirement plan 
shall be treated as an inherited individual 
retirement account or individual retirement 
annuity (within the meaning of section 
408(d)(3)(C)) for purposes of this title, 
and 
‘‘(iii) section 401(a)(9)(B) (other than 
clause (iv) thereof) shall apply to such 
plan. 
‘‘(B) CERTAIN TRUSTS TREATED AS BENE-
FICIARIES.—For purposes of this paragraph, to 
the extent provided in rules prescribed by the 
Secretary, a trust maintained for the benefit of 
one or more designated beneficiaries shall be
treated in the same manner as a trust des-
ignated beneficiary.’’. 
(2) SECTION
403(a) 
PLANS.—Subparagraph 
(B) of section 403(a)(4) of such Code (relating to 
rollover amounts) is amended by inserting ‘‘and 
(11)’’ after ‘‘(7)’’. 
(3) SECTION
403(b) PLANS.—Subparagraph 
(B) of section 403(b)(8) of such Code (relating to 
rollover amounts) is amended by striking ‘‘and (9)’’ 
and inserting ‘‘, (9), and (11)’’. 
(4) SECTION 457 PLANS.—Subparagraph (B) of 
section 457(e)(16) of such Code (relating to rollover 
amounts) is amended by striking ‘‘and (9)’’ and in-
serting ‘‘, (9), and (11)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after December 31, 
2005. 
SEC. 
205. 
ENHANCING 
PORTABILITY 
OF 
AFTER-TAX 
AMOUNTS. 
(a) ROLLOVERS BETWEEN QUALIFIED PLANS AND 
SECTION 403(b) PLANS.—Subparagraph (A) of section 
402(c)(2) of such Code (relating to maximum amount 
which may be rolled over) is amended by striking ‘‘and 
which’’ and inserting ‘‘or to an annuity contract described 
in section 403(b) and such plan or contract’’.
(b) ROLLOVERS TO DEFINED BENEFIT PLANS.— 
Subparagraph (A) of section 402(c)(2) of such Code (re-
lating to maximum amount which may be rolled over) is 
amended by striking ‘‘which is a part of a plan which is 
a defined contribution plan and’’. 
(c) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 206. IRA ELIGIBILITY FOR THE DISABLED. 
(a) IN GENERAL.—Subsection (f) of section 219 of 
the Internal Revenue Code of 1986 (relating to other defi-
nitions and special rules) is amended by adding at the end 
the following: 
‘‘(8) SPECIAL
RULE
FOR
CERTAIN
DISABLED 
INDIVIDUALS.—In the case of an individual— 
‘‘(A) who is disabled (within the meaning 
of section 72(m)(7)), and 
‘‘(B) who has not attained the applicable 
age (as defined in section 401(a)(9)(H)) before 
the close of the taxable year, 
subparagraph (B) of subsection (b)(1) shall not 
apply.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2005.
SEC. 207. EXCLUSION OF CERTAIN QUALIFIED ANNUITY 
PAYMENTS AND FACILITATION OF SUCH PAY-
MENTS AND ROLLOVERS. 
(a) IN GENERAL.—
(1) QUALIFIED PLANS.—Subsection (e) of sec-
tion 402 of the Internal Revenue Code of 1986 (re-
lating to exempt trusts) is amended by adding at the 
end the following new paragraph: 
‘‘(7) EXCLUSION OF PERCENTAGE OF LIFETIME 
ANNUITY PAYMENTS.—
‘‘(A) IN GENERAL.—In the case of a life-
time annuity payment to a qualified distributee 
from a qualified trust (within the meaning of 
subsection (c)(8)(A)) maintained in connection 
with a defined contribution plan, gross income 
shall not include 10 percent of the amount oth-
erwise includible in gross income (determined 
without regard to this paragraph). 
‘‘(B) 5-YEAR LIMITATION.—Subparagraph 
(A) shall apply to a qualified distributee only in 
the first 5 taxable years in which the qualified 
distributee receives lifetime annuity payments 
for the entire taxable year. For purposes of this 
subparagraph, all lifetime annuity payments re-
ceived by a qualified distributee shall be taken 
into account to the extent that such payments
are subject to this paragraph or to rules similar 
to the rules of this paragraph (other than sec-
tions 72(b)(5) and 101(d)(4)). 
‘‘(C) LIMITATION.—
‘‘(i) IN
GENERAL.—With respect to 
any qualified distributee, subparagraph (A) 
shall not apply to any lifetime annuity pay-
ment to the extent that the portion of such 
payment includible in gross income, when 
added to the portion of all previous and si-
multaneous lifetime annuity payments that 
was included in gross income and that was 
paid to such qualified distributee during 
the taxable year, exceeds 50 percent of the 
applicable amount for such year under sec-
tion 415(c)(1)(A). For purposes of the pre-
ceding sentence, the portion of lifetime an-
nuity payments includible in gross income 
shall be determined without regard to sub-
paragraph (A). 
‘‘(ii) AGGREGATION RULE.—For pur-
poses of this subparagraph, all lifetime an-
nuity payments received by a qualified dis-
tributee shall be taken into account to the 
extent that such payments are subject to
this paragraph or to rules similar to the 
rules of this paragraph (other than sec-
tions 72(b)(5) and 101(d)(4)). 
‘‘(D) DEFINITIONS.—For purposes of this 
paragraph—
‘‘(i) LIFETIME ANNUITY PAYMENT.—
‘‘(I) IN
GENERAL.—The term 
‘lifetime annuity payment’ means a 
distribution which is a part of a series 
of substantially equal periodic pay-
ments (made not less frequently than 
annually) made over the life of the 
qualified distributee or the joint lives 
of the qualified distributee and the 
qualified distributee’s designated ben-
eficiary. 
‘‘(II) 
CERTAIN
FLUCTUATING 
PAYMENTS.—Annuity payments shall 
not fail to be treated as part of a se-
ries of substantially equal periodic 
payments merely because the amount 
of the periodic payments may vary in 
accordance with investment experi-
ence, reallocations among investment 
options, actuarial gains or losses, cost
of living indices, a constant percent-
age (not less than zero) applied not 
less frequently than annually, or simi-
lar fluctuating criteria. 
‘‘(III) CERTAIN CHANGES IN THE 
MODE
OF
PAYMENT.—Annuity pay-
ments shall not fail to be treated as 
part of a series of substantially equal 
periodic payments merely because the 
period between each such payment is 
lengthened or shortened, but only if at 
all times such period is not longer 
than one year. 
‘‘(IV) 
PERMITTED
REDUC-
TIONS.—Annuity payments shall not 
fail to be treated as part of a series 
of substantially equal periodic pay-
ments merely because, in the case of 
an annuity payable over the lives of 
the qualified distributee and the quali-
fied distributee’s designated bene-
ficiary, the amounts paid after the 
death of the qualified distributee or 
the qualified distributee’s designated
beneficiary are less than the amounts 
payable during their joint lives. 
‘‘(V) CERTAIN CONTRACT BENE-
FITS.—The availability of a commuta-
tion benefit or other feature permit-
ting acceleration of annuity payments 
(or a modification of the period dur-
ing which such a benefit is available), 
a minimum period of payments cer-
tain, or a minimum amount to be paid 
in any event shall not affect the treat-
ment of a distribution as a lifetime 
annuity payment. 
‘‘(VI) TRUST PAYMENTS.—In the 
case of lifetime annuity payments 
being made to a qualified trust, pay-
ments by the qualified trust to a 
qualified distributee of the entire 
amount received by the qualified trust 
with respect to the qualified dis-
tributee shall constitute lifetime annu-
ity payments. 
‘‘(VII) QUALIFIED DOMESTIC RE-
LATIONS ORDERS.—Annuity payments 
shall not fail to be treated as a series
of substantially equal periodic pay-
ments merely because the payments 
are reduced on account of a qualified 
domestic relations order (within the 
meaning of section 414(p)) that be-
comes effective after the commence-
ment of the annuity payments. 
‘‘(ii) QUALIFIED DISTRIBUTEE.—The 
term ‘qualified distributee’ means the em-
ployee, the surviving spouse of the em-
ployee, and an alternate payee who is the 
spouse or former spouse of the employee. 
‘‘(E) RECAPTURE TAX.—
‘‘(i) IN GENERAL.—If—
‘‘(I) an amount is not includible 
in gross income by reason of subpara-
graph (A), and 
‘‘(II) the series of payments of 
which such payment is a part is sub-
sequently modified (other than by rea-
son of death or disability) so that 
some or all future payments are not 
lifetime annuity payments, 
the qualified distributee’s gross income for 
the first taxable year in which such modi-
fication occurs shall be increased by an 
amount, determined under rules prescribed 
by the Secretary, equal to the amount 
which (but for subparagraph (A)) would 
have been includible in the qualified 
distributee’s gross income if the modifica-
tion had been in effect at all times, plus in-
terest for the deferral period at the under-
payment rate established under section 
6621. 
‘‘(ii) DEFERRAL
PERIOD.—For pur-
poses of this subparagraph, the term ‘de-
ferral period’ means the period beginning 
with the taxable year in which (without re-
gard to subparagraph (A)) the payment 
would have been includible in gross income 
and ending with the taxable year in which 
the modification described in clause (i)(II) 
occurs. 
‘‘(F) PHASEOUT OF EXCLUSION.—
‘‘(i) IN
GENERAL.—In any taxable 
year, the exclusion from gross income for 
any qualified distributee under this para-
graph and under rules similar to the rules 
of this paragraph (other than sections