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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
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‘‘(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, 2006).
‘‘(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:
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‘‘For taxable years beginning
in:
‘‘The applicable dollar amount
is:
1999 ...............................................
$51,000
2000 ...............................................
$52,000
2001 ...............................................
$53,000
2002 ...............................................
$54,000
2003 ...............................................
$60,000
2004 ...............................................
$65,000
2005 ...............................................
$70,000
2006 ...............................................
$75,000
2007 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:
1999 ...............................................
$31,000
2000 ...............................................
$32,000
2001 ...............................................
$33,000
2002 ...............................................
$34,000
2003 ...............................................
$40,000
2004 ...............................................
$45,000
2005 and thereafter .......................
$50,000.
‘‘(iii) In the case of a married individ-
ual 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.
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‘‘(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-
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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 follow-
ing subparagraphs shall not be treated as an active
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
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‘‘(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
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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, 2002,
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.
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‘‘(B) PURCHASE
OF
PREPAID
TUITION
CERTIFICATES.—A Roth IRA account may pur-
chase prepaid tuition certificates without violat-
ing 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, 1998,
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 Reve-
nue Code of 1986 shall apply until January 1,
2002.
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‘‘(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).
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‘‘(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-
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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
which were included in gross income and rein-
vested in the contract), minus
‘‘(B) the aggregate amount received under
the contract before such date, to the extent that
such amount was excludable from gross income
under this subtitle or prior income tax laws.
‘‘(2) OTHER
TERMS
USED
IN
SUBSECTION
(b).—Calculations under subsections (a) and (b)
shall be made in accordance with regulations pre-
scribed by the Secretary, which regulations shall
generally be consistent with the section 72 of the In-
ternal Revenue Code of 1986.
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‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER
RETIREMENT PLANS.—
‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY
PAYMENTS.—
‘‘(A) IN
GENERAL.—In the case of any
amount received as an annuity under a quali-
fied employer retirement plan—
‘‘(i) subsection (b) shall not apply,
and
‘‘(ii) the investment in the contract
shall be recovered as provided in this para-
graph.
‘‘(B) METHOD
OF
RECOVERING
INVEST-
MENT IN CONTRACT.—
‘‘(i) 
IN
GENERAL.—Gross 
income
shall not include so much of any monthly
annuity payment under a qualified em-
ployer retirement plan as does not exceed
the amount obtained by dividing—
‘‘(I) the investment in the con-
tract (as of the annuity starting date),
by
‘‘(II) the number of anticipated
payments determined under the table
contained in clause (iii) (or, in the