‘‘(i) the compensation includible in
such individual’s gross income for the tax-
able year, plus
‘‘(ii) the compensation includible in
the gross income of such individual’s
spouse for the taxable year reduced by—
‘‘(I) the amount allowed as a de-
duction under subsection (a) to such
spouse for such taxable year, and
‘‘(II) the amount of any contribu-
tion on behalf of such spouse to a
Roth IRA under section 30 for such
taxable year.
‘‘(2) INDIVIDUALS
TO
WHOM
PARAGRAPH
(1)
APPLIES.—Paragraph (1) shall apply to any indi-
vidual if—
‘‘(A) such individual files a joint return for
the taxable year, and
‘‘(B) the amount of compensation (if any)
includible in such individual’s gross income for
the taxable year is less than the compensation
includible in the gross income of such individ-
ual’s spouse for the taxable year.
‘‘(d) OTHER LIMITATIONS AND RESTRICTIONS.—
‘‘(1) BENEFICIARY
MUST
BE
UNDER
AGE
701⁄2.—No deduction shall be allowed under this sec-
tion with respect to any qualified retirement con-
tribution for the benefit of an individual if such indi-
vidual has attained age 701⁄2 before the close of such
individual’s taxable year for which the contribution
was made.
‘‘(2) RECONTRIBUTED
AMOUNTS.—No deduc-
tion shall be allowed under this section with respect
to a rollover contribution described in section 402(c),
403(a)(4), 403(b)(8), or 408(d)(3).
‘‘(3) AMOUNTS CONTRIBUTED UNDER ENDOW-
MENT
CONTRACT.—In the case of an endowment
contract described in section 408(b), no deduction
shall be allowed under this section for that portion
of the amounts paid under the contract for the tax-
able year which is properly allocable, under regula-
tions prescribed by the Secretary, to the cost of life
insurance.
‘‘(4) DENIAL
OF
DEDUCTION
FOR
AMOUNT
CONTRIBUTED
TO
INHERITED
ANNUITIES
OR
AC-
COUNTS.—No deduction shall be allowed under this
section with respect to any amount paid to an inher-
ited individual retirement account or individual re-
tirement annuity (within the meaning of section
408(d)(3)(C)(ii)).
‘‘(e) QUALIFIED RETIREMENT CONTRIBUTION.—For
purposes of this section, the term ‘qualified retirement
contribution’ means—
‘‘(1) any amount paid in cash for the taxable
year by or on behalf of an individual to an individual
retirement plan for such individual’s benefit, and
‘‘(2) any amount contributed on behalf of any
individual to a plan described in section 501(c)(18)
of the Internal Revenue Code of 1986.
‘‘(f) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—For purposes of this
section, the term ‘compensation’ includes earned in-
come (as defined in section 401(c)(2)). The term
‘compensation’ does not include any amount received
as a pension or annuity and does not include any
amount received as deferred compensation. The term
‘compensation’ shall include any alimony, child sup-
port and separate maintenance payments includible
in the individual’s gross income with respect to a di-
vorce or separation instrument. For purposes of this
paragraph, section 401(c)(2) shall be applied as if
the term trade or business for purposes of section
1402 included service described in subsection (c)(6).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (b) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to an
individual retirement plan during a year if the con-
tribution is made on account of such year and is
made not later than April 15 of the following year.
‘‘(4) REPORTS.—The Secretary shall prescribe
regulations which prescribe the time and the manner
in which reports to the Secretary and plan partici-
pants shall be made by the plan administrator of a
qualified employer or government plan receiving
qualified voluntary employee contributions.
‘‘(5) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to an in-
dividual retirement plan shall be treated as payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a deduction for such
payment is allowable under this section to the em-
ployee.
‘‘(6) EXCESS
CONTRIBUTIONS
TREATED
AS
CONTRIBUTION
MADE
DURING
SUBSEQUENT
YEAR
FOR WHICH THERE IS AN UNUSED LIMITATION.—
‘‘(A) IN GENERAL.—If for the taxable year
the maximum amount allowable as a deduction
under this section for contributions to an indi-
vidual retirement plan exceeds the amount con-
tributed, then the taxpayer shall be treated as
having made an additional contribution for the
taxable year in an amount equal to the lesser
of—
‘‘(i) the amount of such excess, or
‘‘(ii) the amount of the excess con-
tributions for such taxable year (deter-
mined under section 4973(b)(2) without
regard to subparagraph (C) thereof).
‘‘(B) AMOUNT
CONTRIBUTED.—For pur-
poses 
of 
this 
paragraph, 
the 
amount
contributed—
‘‘(i) shall be determined without re-
gard to this paragraph, and
‘‘(ii) shall not include any rollover
contribution.
‘‘(C) SPECIAL RULE WHERE EXCESS DE-
DUCTION WAS ALLOWED FOR CLOSED YEAR.—
Proper reduction shall be made in the amount
allowable as a deduction by reason of this para-
graph for any amount allowed as a deduction
under this section for a prior taxable year for
which the period for assessing deficiency has ex-
pired if the amount so allowed exceeds the
amount which should have been allowed for
such prior taxable year.
‘‘(7) ELECTION
NOT
TO
DEDUCT
CONTRIBU-
TIONS.—For election not to deduct contributions to
individual 
retirement 
plans, 
see 
section
408(o)(2)(B)(ii).
‘‘(g) LIMITATION ON DEDUCTION FOR ACTIVE PAR-
TICIPANTS IN CERTAIN PENSION PLANS.—
‘‘(1) IN GENERAL.—If (for any part of any plan
year ending with or within a taxable year) an indi-
vidual is an active participant, each of the dollar
limitations contained in subsections (b)(1)(A) and
(c)(1)(A) for such taxable year shall be reduced (but
not below zero) by the amount determined under
paragraph (2).
‘‘(2) AMOUNT OF REDUCTION.—
‘‘(A) IN
GENERAL.—The amount deter-
mined under this paragraph with respect to any
dollar limitation shall be the amount which
bears the same ratio to such limitation as—
‘‘(i) the excess of—
‘‘(I) 
the 
taxpayer’s 
adjusted
gross income for such taxable year,
over
‘‘(II) 
the 
applicable 
dollar
amount, bears to
‘‘(ii) $10,000 ($20,000 in the case of
a joint return for a taxable year beginning
after December 31, 2009).
‘‘(B) NO REDUCTION BELOW $200 UNTIL
COMPLETE
PHASE-OUT.—No dollar limitation
shall be reduced below $200 under paragraph
(1) unless (without regard to this subpara-
graph) such limitation is reduced to zero.
‘‘(C) ROUNDING.—Any amount determined
under this paragraph which is not a multiple of
$10 shall be rounded to the next lowest $10.
‘‘(3) ADJUSTED
GROSS
INCOME; APPLICABLE
DOLLAR
AMOUNT.—For 
purposes 
of 
this
subsection—
‘‘(A) ADJUSTED
GROSS
INCOME.—Ad-
justed gross income of any taxpayer shall be de-
termined without regard to the qualified IRA
deduction.
‘‘(B) APPLICABLE DOLLAR AMOUNT.—The
term ‘applicable dollar amount’ means the fol-
lowing:
‘‘(i) In the case of a taxpayer filing a
joint return:
‘‘For taxable years beginning
in:
‘‘The applicable dollar amount
is:
2002 ...............................................
$51,000
2003 ...............................................
$52,000
2004 ...............................................
$53,000
2005 ...............................................
$54,000
2006 ...............................................
$60,000
2007 ...............................................
$65,000
2008 ...............................................
$70,000
2009 ...............................................
$75,000
2010 and thereafter .......................
$80,000.
‘‘(ii) In the case of any other taxpayer
(other than a married individual filing a
separate return):
For taxable years beginning
in:
The applicable dollar amount
is:
2002 ...............................................
$31,000
2003 ...............................................
$32,000
2004 ...............................................
$33,000
2005 ...............................................
$34,000
2006 ...............................................
$40,000
2007 ...............................................
$45,000
2008 and thereafter .......................
$50,000.
‘‘(iii) In the case of a married indi-
vidual filing a separate return, zero.
‘‘(4) SPECIAL RULE FOR MARRIED INDIVIDUALS
FILING SEPARATELY AND LIVING APART.—A hus-
band and wife who—
‘‘(A) file separate returns for any taxable
year, and
‘‘(B) live apart at all times during such
taxable year, shall not be treated as married in-
dividuals for purposes of this subsection.
‘‘(5) ACTIVE
PARTICIPANT.—For purposes of
this subsection, the term ‘active participant’ means,
with respect to any plan year, an individual—
‘‘(A) who is an active participant in—
‘‘(i) a plan described in section 401(a)
which includes a trust exempt from tax,
‘‘(ii) an annuity plan described in sec-
tion 403(a),
‘‘(iii) a plan established for its em-
ployees by the United States, by a State or
political subdivision thereof, or by an agen-
cy or instrumentality of any of the fore-
going,
‘‘(iv) an annuity contract described in
section 403(b),
‘‘(v) a simplified employee pension
(within the meaning of section 408(k)), or
‘‘(vi) any simple retirement account
(within the meaning of section 408(p), or
‘‘(B) who makes deductible contributions
to a trust described in section 501(c)(18).
The determination of whether an individual is an ac-
tive participant shall be made without regard to
whether or not such individual’s rights under a plan,
trust, or contract are nonforfeitable. An eligible de-
ferred compensation plan (within the meaning of
section 457(b) of the Internal Revenue Code of
1986) shall not be treated as a plan described in
subparagraph (A)(iii).
‘‘(6) CERTAIN INDIVIDUALS NOT TREATED AS
ACTIVE PARTICIPANTS.—For purposes of this sub-
section, any individual described in any of the fol-
lowing subparagraphs shall not be treated as an ac-
tive participant for any taxable year solely because
of any participation so described:
‘‘(A) MEMBERS
OF
RESERVE
COMPO-
NENTS.—Participation in a plan described in
subparagraph (A)(iii) of paragraph (5) by rea-
son of service as a member of a reserve compo-
nent of the Armed Forces (as defined in section
10101 of title 10, unless such individual has
served in excess of 90 days on active duty
(other than active duty for training) during the
year.
‘‘(B) VOLUNTEER FIREFIGHTERS.—A vol-
unteer firefighter—
‘‘(i) who is a participant in a plan de-
scribed in subparagraph (A)(iii) of para-
graph (5) based on his activity as a volun-
teer firefighter, and
‘‘(ii) whose accrued benefit as of the
beginning of the taxable year is not more
than an annual benefit of $1,800 (when
expressed as a single life annuity com-
mencing at age 65).
‘‘(7) SPECIAL RULE FOR CERTAIN SPOUSES.—
In the case of an individual who is an active partici-
pant at no time during any plan year ending with
or within the taxable year but whose spouse is an
active participant for any part of any such plan
year—
‘‘(A) the applicable dollar amount under
paragraph (3)(B)(i) with respect to the tax-
payer shall be $150,000, and
‘‘(B) the amount applicable under para-
graph (2)(A)(ii) shall be $10,000.
‘‘(h) CROSS REFERENCE.—For failure to provide re-
quired reports, see section 6652(g).
‘‘SEC. 32. EFFECT OF REPEAL OF SPECIAL SAVINGS PROVI-
SIONS.
‘‘(a) EDUCATION IRA’S.—
‘‘(1) IN GENERAL.—An account that qualifies
as an education IRA under the Internal Revenue
Code of 1986 as in effect immediately before adop-
tion of the Simplified USA Tax Act shall be treated
as a Roth IRA for purposes of this chapter (includ-
ing rules allowing for tax-free rollover).
‘‘(2) NO NEW CONTRIBUTIONS.—Neither para-
graph (1) nor section 530 of the Internal Revenue
Code of 1986 shall apply to an education IRA to
which contributions are made after December 31,
2001.
‘‘(3) SPECIAL RULE.—For purposes of applying
section 30 to an account that was an educational
IRA, the designated beneficiary of such account
shall be treated as described in a subclause of clause
(vi) of section 30(d)(5).
‘‘(b) MEDICAL SAVINGS ACCOUNTS.—
‘‘(1) EQUIVALENT
OF
DEDUCTIBLE
IRA.—A
medical savings account shall be treated as an indi-
vidual retirement plan other than a Roth IRA for
purposes of this chapter and chapter 3.
‘‘(2) SPECIAL ROLLOVER RULES.—
‘‘(A) NO INCOME LIMIT.—The income lim-
its of section 30(c)(3)(B) shall not apply to the
rollover of a medical savings account into a
Roth IRA.
‘‘(B) MEDICAL DISTRIBUTIONS.—For pur-
poses of applying section 30 to the amount of
any medical savings account rolled over to a
Roth IRA, subclause (iii) of section 30(d)(5)
shall apply without regard to the limitation
based on adjusted gross income.
‘‘(3) MEDICAL
SAVINGS
ACCOUNT.—‘Medical
savings account’ means an account established under
section 220 of the Internal Revenue Code of 1986.
‘‘(c) QUALIFIED STATE TUITION PROGRAMS.—
‘‘(1) EDUCATION
SAVINGS
ACCOUNT
PRO-
GRAMS.—No account shall fail to qualify as a Roth
IRA merely because in addition to the beneficiary of
the account, there is a ‘designated beneficiary’ whose
education expenses the beneficiary expects to pay or
have paid with the proceeds of the account. The pay-
ment of such expenses with the proceeds of an ac-
count shall be treated as a distribution from the ac-
count.
‘‘(2) PREPAID TUITION CERTIFICATES.—
‘‘(A) CONTRIBUTION
TO
ACCOUNTS.—An
individual may contribute prepaid tuition cer-
tificates to a Roth IRA before January 1, 2005,
without recognizing gross income on the con-
tribution of such certificates. For purposes of
section 30, the amount contributed shall equal
the cost of the certificates.
‘‘(B) PURCHASE
OF
PREPAID
TUITION
CERTIFICATES.—A Roth IRA account may pur-
chase prepaid tuition certificates without vio-
lating section 408.
‘‘(C) PREPAID TUITION CERTIFICATES.—
‘Prepaid tuition certificates’ means credits or
certificates that entitle a designated beneficiary
of such certificates to the waiver or payment of
qualified higher education expenses of the des-
ignated beneficiary.
‘‘(3) ROLLOVER OF ACCOUNTS.—An account to
which section 529 of the Internal Revenue Code of
1986 (before adoption of the Simplified USA Tax
Act) shall be treated as a Roth IRA for purposes of
rules relating to qualified rollovers (except that in
the case of any such rollover, any contributions
made to the section 529 account after July 1, 2001,
shall be treated as contributions to the Roth IRA in
the year of the rollover for purposes of section
30(c)(2)).
‘‘(4) TRANSITION.—
‘‘(A) TRANSITION
PERIOD.—Subsections
(a) and (c) of section 529 of the Internal Rev-
enue Code of 1986 shall apply until January 1,
2005.
‘‘(B) TRANSITION.—The Secretary shall
prescribe rules to facilitate use of the Roth IRA
rules to exempt earnings on accounts and cer-
tificates previously exempted under section 529
of the Internal Revenue Code of 1986.
‘‘(5) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of this subsection, the defi-
nition ‘qualified higher education expenses’ in sec-
tion 529(e)(3) of the Internal Revenue Code of 1986
shall apply.
‘‘SEC. 33. ANNUITIES, CERTAIN PROCEEDS OF ENDOWMENT
AND LIFE INSURANCE CONTRACTS.
‘‘(a) GENERAL RULE FOR ANNUITIES.—Except as
otherwise provided in this chapter, gross income includes
any amount received as an annuity (whether for a period
certain or during one or more lives) under an annuity, en-
dowment, or life insurance contract.
‘‘(b) EXCLUSION RATIO.—
‘‘(1) IN GENERAL.—Gross income does not in-
clude that part of any amount received as an annu-
ity under an annuity, endowment, or life insurance
contract which bears the same ratio to such amount
as the investment in the contract (as of the annuity
starting date) bears to the expected return under the
contract (as of such date).
‘‘(2) EXCLUSION LIMITED TO INVESTMENT.—
The portion of any amount received as an annuity
which is excluded from gross income under para-
graph (1) shall not exceed the unrecovered invest-
ment in the contract immediately before the receipt
of such amount.
‘‘(3) DEDUCTION WHERE ANNUITY PAYMENTS
CEASE BEFORE ENTIRE INVESTMENT RECOVERED.—
‘‘(A) IN GENERAL.—If—
‘‘(i) after the annuity starting date,
payments as an annuity under the contract
cease by reason of the death of an annu-
itant, and
‘‘(ii) as of the date of such cessation,
there is unrecovered investment in the con-
tract,
the amount of such unrecovered investment (in
excess of any amount specified in subsection
(e)(5) which was not included in gross income)
shall be allowed as a deduction from adjusted
gross income in determining taxable income of
the annuitant for his last taxable year.
‘‘(B) PAYMENTS TO OTHER PERSONS.—In
the case of any contract which provides for pay-
ments meeting the requirements of subpara-
graphs (B) and (C) of subsection (c)(2), the de-
duction under subparagraph (A) shall be al-
lowed to the person entitled to such payments
for the taxable year in which such payments are
received.
‘‘(c) DEFINITIONS.—
‘‘(1) INVESTMENT
IN
THE
CONTRACT.—For
purposes of subsection (b), the investment in the
contract as of the annuity starting date is—
‘‘(A) the aggregate amount of premiums or
other consideration paid for the contract (in-
cluding any amounts earned on the contract