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‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS.—
No payment or distribution shall be treated as
a qualified distribution if—
‘‘(i) it is made within the 5-taxable
year period beginning with the 1st taxable
year in which the individual made a con-
tribution to an ADS account (or such indi-
vidual’s spouse made a contribution to an
ADS account) established for such individ-
ual, or
‘‘(ii) in the case of a payment or dis-
tribution properly allocable to a rollover
contribution (or income allocable thereto),
it is made within 5 years after the date on
which such rollover contribution was made,
as determined under regulations prescribed
by the Secretary.
Clause (ii) shall not apply to a rollover con-
tribution from an ADS account.
‘‘(3) INCOME INCLUSION FOR ROLLOVERS FROM
NON-ADS ACCOUNTS.—In the case of any amount
paid or distributed out of an individual retirement
plan (other than an ADS account) which is paid into
an ADS account (established for the benefit of the
payee or distributee, as the case may be) before the
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close of the 60th day after the day on which the
payment or distribution is received—
‘‘(A) sections 72(t) and 408(d)(3) shall not
apply, and
‘‘(B) any amount required to be included
in gross income by reason of this paragraph
shall be so included ratably over the 4-taxable
year period beginning with the taxable year in
which the payment or distribution is made.
‘‘(e) QUALIFIED
SPECIAL
PURPOSE
DISTRIBU-
TION.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified special purpose distribution’
means any payments or distributions to an individ-
ual from an ADS account—
‘‘(A) if such payments or distributions are
qualified first-time homebuyer distributions, or
‘‘(B) to the extent such payments or dis-
tributions do not exceed—
‘‘(i) the qualified higher education ex-
penses of the taxpayer for the taxable year
in which received, and
‘‘(ii) the qualified medical expenses of
the taxpayer for the taxable year in which
received.
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The term ‘qualified special purpose distribution’
shall not include any payment or distribution to the
extent such payment or distribution reduces the bal-
ance of the amounts in ADS accounts of the tax-
payer below $1,000.
‘‘(2) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘qualified first-time home-
buyer distribution’ means any payment or dis-
tribution received by an individual to the extent
such payment or distribution is used by the in-
dividual before the close of the 60th day after
the day on which such payment or distribution
is received to pay qualified acquisition costs
with respect to a principal residence for such
individual as a first-time homebuyer.
‘‘(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.
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‘‘(C) FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For purposes of this para-
graph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if such individual (and, if married,
such individual’s spouse) had no present
ownership interest in a principal residence
during the 3-year period ending on the
date of acquisition of the principal resi-
dence to which this paragraph applies.
‘‘(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 payment or distribution out
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the term ‘long-term care insurance contract’
means any insurance contract issued if—
‘‘(i) the only insurance protection pro-
vided under such contract is coverage of
qualified long-term care services and bene-
fits incidental to such coverage (as defined
under regulations prescribed by the Sec-
retary),
‘‘(ii) the maximum benefit under the
policy for expenses incurred for any day
does not exceed $200,
‘‘(iii) such contract does not cover ex-
penses incurred for services or items to the
extent that such expenses are reimbursable
under title XVIII of the Social Security
Act or would be so reimbursable but for
the application of a deductible or coinsur-
ance amount,
‘‘(iv) such contract is guaranteed re-
newable,
‘‘(v) such contract does not have any
cash surrender value, and
‘‘(vi) all refunds of premiums, and all
policyholder dividends or similar amounts,
under such contract are to be applied as a
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reduction in future premiums or to in-
crease future benefits.
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) ROLLOVER
CONTRIBUTIONS.—The term
‘rollover contributions’ means contributions de-
scribed in sections 402(c), 403(a)(4), 403(b)(8), and
408(d)(3).
‘‘(2) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f).’’
(b) 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. American dream savings accounts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
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