tirement plan other than a Roth IRA (or in-
come allocable thereto), it is made within the 5- 
taxable year period beginning with the taxable 
year in which the rollover contribution was 
made. 
‘‘(3) NONQUALIFIED
DISTRIBUTIONS.—In ap-
plying section 33 to any distribution from a Roth 
IRA described in paragraph (2), such distribution 
shall be treated as made from contributions to the 
Roth IRA to the extent that such distribution, when 
added to all previous distributions from the Roth 
IRA, does not exceed the aggregate amount of con-
tributions to the Roth IRA. Only distributions at-
tributable to earnings on accounts (as opposed to 
distributions of contributions) shall be included in 
gross income. 
‘‘(4) ROLLOVERS FROM AN IRA OTHER THAN A 
ROTH IRA.— 
‘‘(A) IN GENERAL.—Notwithstanding sec-
tion 408(d)(3), in the case of any distribution 
to which this paragraph applies there shall be 
included in gross income any amount which 
would be includible were it not part of a quali-
fied rollover contribution.
‘‘(B) DISTRIBUTIONS
TO
WHICH
PARA-
GRAPH APPLIES.—This paragraph shall apply 
to a distribution from an individual retirement 
plan (other than a Roth IRA) maintained for 
the benefit of an individual which is contributed 
to a Roth IRA maintained for the benefit of 
such individual in a qualified rollover contribu-
tion. 
‘‘(C) CONVERSIONS.—The conversion of an 
individual retirement plan (other than a Roth 
IRA) to a Roth IRA shall be treated for pur-
poses of this paragraph as a distribution to 
which this paragraph applies. 
‘‘(D) CONVERSION OF EXCESS CONTRIBU-
TIONS.—If, no later than the due date for filing 
the return of tax for any taxable year (without 
regard to extensions), an individual transfers, 
from an individual retirement plan (other than 
a Roth IRA), contributions for such taxable 
year (and any earnings allocable thereto) to a 
Roth IRA, no such amount shall be includible 
in gross income to the extent no deduction was 
allowed with respect to such amount. 
‘‘(E) ADDITIONAL
REPORTING
REQUIRE-
MENTS.—Trustees of Roth IRAs, trustees of in-
dividual retirement plans, or both, whichever is 
appropriate, shall include such additional infor-
mation in reports required under section 408(i) 
as the Secretary may require to ensure that 
amounts required to be included in gross in-
come under subparagraph (A) are so included. 
‘‘(5) COORDINATION WITH INDIVIDUAL RETIRE-
MENT ACCOUNTS.—Section 408(d)(2) shall be ap-
plied separately with respect to Roth IRAs and other 
individual retirement plans. 
‘‘(6) QUALIFIED SPECIAL PURPOSE DISTRIBU-
TION.—‘Qualified 
special 
purpose 
distribution’ 
means— 
‘‘(i) DISTRIBUTIONS
UPON
DEATH.—Dis-
tributions made to a beneficiary (or to the es-
tate of the individual) on or after the death of 
the individual. 
‘‘(ii) DISTRIBUTIONS UPON DISABILITY.— 
Distributions attributable to the individual’s 
being disabled. 
‘‘(iii) DISTRIBUTIONS TO PAY MEDICAL EX-
PENSES.—Distributions made to the individual 
for amounts paid during the year for medical 
care, but only to the extent that the amounts 
paid for medical care exceed 7.5 percent of the
adjusted gross income of the taxpayer (deter-
mined without regard to whether the employee 
itemizes deductions for such taxable year). 
‘‘(iv) QDRO.—Any distribution to an al-
ternate payee pursuant to a qualified domestic 
relations order (within the meaning of section 
414(p)(1)). 
‘‘(v) DISTRIBUTIONS TO UNEMPLOYED IN-
DIVIDUALS
FOR
HEALTH
INSURANCE
PRE-
MIUMS.—Distributions to an individual— 
‘‘(I) if such individual has received 
unemployment compensation for 12 con-
secutive weeks under any Federal or State 
unemployment compensation law by reason 
of such separation (or in the case of a self- 
employed individual, to the extent provided 
in regulations, if the individual would have 
received unemployment compensation but 
for the fact the individual was self-em-
ployed), 
‘‘(II) if such distributions are made 
during any taxable year during which such 
unemployment compensation is paid or the 
succeeding taxable year,
‘‘(III) to the extent such distributions 
do not exceed the amount paid during the 
taxable year for insurance for the diag-
nosis, cure, mitigation, treatment, or pre-
vention of disease, or for the purpose of af-
fecting any structure or function of the 
body (or for transportation primarily for 
and essential to such medical care) (includ-
ing amounts paid as premiums under part 
B of title XVIII of the Social Security Act, 
relating to supplementary medical insur-
ance for the aged) or for any qualified 
long-term care insurance contract (as de-
fined in section 7702B(b)) with respect to 
the individual and the individual’s spouse 
and dependents, and 
‘‘(IV) such distributions are not made 
after the individual has been employed for 
at least 60 days after the separation from 
employment to which clause (I) applies. 
‘‘(vi) DISTRIBUTIONS
TO
PAY
HIGHER 
EDUCATION
EXPENSES.—Distributions to the 
extent such distributions do not exceed the 
qualified higher education expenses (as defined 
in section 8(a)(2)) of—
‘‘(I) the taxpayer, 
‘‘(II) the taxpayer’s spouse, or 
‘‘(III) any child or grandchild of the 
taxpayer or the taxpayer’s spouse. 
‘‘(vii) 
DISTRIBUTIONS
FOR
FIRST 
HOME
PURCHASES.—Distributions which 
are qualified first-time homebuyer distribu-
tions (as defined in paragraph (6)). 
‘‘(7) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.— 
‘‘(A) IN
GENERAL.—‘Qualified first-time 
homebuyer distribution’ means any payment or 
distribution received by an individual to the ex-
tent such payment or distribution is used by the 
individual before the close of the 120th day 
after the day on which such payment or dis-
tribution is received to pay qualified acquisition 
costs with respect to a principal residence of a 
first-time homebuyer who is such individual, the 
spouse of such individual, or any child, grand-
child, or ancestor of such individual or the indi-
vidual’s spouse. 
‘‘(B) LIFETIME
DOLLAR
LIMITATION.— 
The aggregate amount of payments or distribu-
tions received by an individual which may be
treated as qualified first-time homebuyer dis-
tributions for any taxable year shall not exceed 
the excess (if any) of— 
‘‘(i) $10,000, over 
‘‘(ii) the aggregate amounts treated as 
qualified first-time homebuyer distributions 
with respect to such individual for all prior 
taxable years. 
‘‘(C) QUALIFIED
ACQUISITION
COSTS.— 
‘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. 
‘‘(D) FIRST-TIME
HOMEBUYER; 
OTHER 
DEFINITIONS.—For purposes of this para-
graph— 
‘‘(i) 
FIRST-TIME
HOMEBUYER.— 
‘First-time homebuyer’ means any indi-
vidual if such individual (and if married, 
such individual’s spouse) had no present 
ownership interest in a principal residence 
during the 2-year period ending on the 
date of acquisition of the principal resi-
dence to which this paragraph applies, and
‘‘(ii) DATE
OF
ACQUISITION.—‘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. 
‘‘(E) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—The Secretary shall prescribe rules 
under which a distribution will not be penalized 
if made in anticipation of being a qualified 
first-time homeowner distribution but construc-
tion delays or other unanticipated factors delay 
the closing. 
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For 
purposes of this section, the term qualified rollover con-
tribution means a rollover contribution to a Roth IRA 
from another such account, or from an individual retire-
ment plan, but only if such rollover contribution meets the 
requirements of section 408(d)(3). For purposes of section 
408(d)(3)(B), there shall be disregarded any qualified roll-
over contribution from an individual retirement plan 
(other than a Roth IRA) to a Roth IRA.
‘‘(f) PERMITTED INVESTMENTS.— 
‘‘(1) INVESTMENT PERMITTED.—A Roth IRA 
shall not cease to be an individual retirement ac-
count pursuant to section 408(e)(2) solely because 
funds from such account are used to make a debt 
or equity investment in a controlled business entity. 
‘‘(2) LOANS TO A CONTROLLED BUSINESS ENTI-
TY.— 
‘‘(A) EXCESS
RETURN.—If funds in a 
Roth IRA are loaned to a controlled business 
entity, any return on such loans in excess of a 
fair return shall be treated as gross income of 
the beneficiary that is then deposited in the 
Roth IRA. 
‘‘(B) LOAN.—For purposes of this section, 
an amount shall be treated as loaned to a con-
trolled business entity only if— 
‘‘(i) the amount is treated in the 
books and records of the business entity as 
a loan, 
‘‘(ii) the transaction is reflected in a 
written note or other evidence of indebted-
ness, and 
‘‘(iii) the business entity is required to 
pay interest at least once per year and at
the time such loan is made it is reasonable 
to expect that such interest will be paid on 
a timely basis. 
‘‘(C) FAIR RETURN.—For purposes of this 
subsection, a ‘fair return’ with respect to a loan 
is interest at a rate not in excess of 3 percent-
age points plus the minimum rate of interest 
that would have to be charged with respect to 
such loan to prevent it from being a below-mar-
ket loan for purposes of section 7872 (deter-
mined as if section 7872 applied to such loan). 
‘‘(3) EQUITY INVESTMENT IN A CONTROLLED 
BUSINESS ENTITY.—If funds in a Roth IRA are con-
tributed to the capital of, applied to acquire stock or 
other equity interest in, or otherwise transferred to, 
a controlled business entity in a transaction that is 
not considered a loan for purposes of this sub-
section, any return on such equity shall be treated 
as gross income of the beneficiary that is then de-
posited in the Roth IRA. The preceding sentence 
shall not apply to— 
‘‘(A) the proceeds of the sale of such eq-
uity interest to a third party, or 
‘‘(B) the proceeds received by the Roth 
IRA as the result of a complete redemption of
the beneficiary’s interest in the business entity 
(including any interests held through a Roth 
IRA). 
‘‘(4) CONTROLLED
BUSINESS
ENTITY.—‘Con-
trolled business entity’ means any business entity in 
which the beneficiary of the Roth IRA holds at least 
a 5 percent interest in the profits and losses (after 
taking into account the investment through the Roth 
IRA) and in which an investment would cause the 
Roth IRA to cease to be an individual retirement ac-
count by reason of section 408(e)(2) but for this 
subsection. 
‘‘(5) APPLICATION OF SECTION 4975.—Section 
4975 shall not apply to a loan or equity investment 
by a Roth IRA in a controlled business entity. 
‘‘(6) TAX AND PENALTY AVOIDANCE.—The Sec-
retary shall prescribe regulations that prohibit the 
provisions of this subsection to be used to cir-
cumvent the application of subsection (d)(2) (relat-
ing to taxable distributions). The regulations shall 
not prohibit bona fide investments in controlled busi-
ness entities. The regulations shall address loans to 
and investments in a controlled business entity that 
are used to fund distributions or dividends from the
business entity to the account beneficiary or a mem-
ber of the beneficiary’s family. 
‘‘SEC. 31. DEDUCTIBLE IRAS. 
‘‘(a) ALLOWANCE OF DEDUCTION.—The ‘qualified 
IRA deduction’ shall be an amount equal to the qualified 
retirement contributions of the individual for the taxable 
year, except as limited by subsection (b). 
‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.— 
‘‘(1) IN GENERAL.—The amount allowable as a 
deduction under subsection (a) to any individual for 
any taxable year shall not exceed the lesser of— 
‘‘(A) $2,000, or 
‘‘(B) an amount equal to the compensation 
includible in the individual’s gross income for 
such taxable year. 
‘‘(2) SPECIAL RULE FOR EMPLOYER CONTRIBU-
TIONS UNDER SIMPLIFIED EMPLOYEE PENSIONS.— 
This section shall not apply with respect to an em-
ployer contribution to a simplified employee pension. 
‘‘(3) 
GRANDFATHERED
PLANS.—Notwith-
standing paragraph (1), the amount allowable as a 
deduction under subsection (a) with respect to any 
contributions on behalf of an employee to a plan de-
scribed in section 501(c)(18) of the Internal Rev-
enue Code of 1986 shall not exceed the lesser of—
‘‘(A) $7,000, or 
‘‘(B) an amount equal to 25 percent of the 
compensation (as defined in section 415(c)(3)) 
includible in the individual’s gross income for 
such taxable year. 
‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT 
ACCOUNTS.—This section shall not apply with re-
spect to any amount contributed to a simple retire-
ment account established under section 408(p). 
‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDI-
VIDUALS.— 
‘‘(1) IN GENERAL.—In the case of an individual 
to whom this paragraph applies for the taxable year, 
the limitation of paragraph (1) of subsection (b) 
shall be equal to the lesser of— 
‘‘(A) the dollar amount in effect under 
subsection (b)(1)(A) for the taxable year, or 
‘‘(B) the sum of— 
‘‘(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 contrib-
uted— 
‘‘(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, 2014). 
‘‘(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 sub-
section— 
‘‘(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:
The applicable 
‘‘For taxable years beginning in: 
dollar amount is: 
2007 .........................................................................................
$51,000
2008 .........................................................................................
$52,000
2009 .........................................................................................
$53,000
2010 .........................................................................................
$54,000
2011 .........................................................................................
$60,000
2012 .........................................................................................
$65,000
2013 .........................................................................................
$70,000
2014 .........................................................................................
$75,000
2015 and thereafter .................................................................
$80,000. 
‘‘(ii) In the case of any other taxpayer 
(other than a married individual filing a 
separate return): 
The applicable 
‘‘For taxable years beginning in: 
dollar amount is: 
2007 .........................................................................................
$31,000
2008 .........................................................................................
$32,000
2009 .........................................................................................
$33,000
2010 .........................................................................................
$34,000
2011 .........................................................................................
$40,000
2012 .........................................................................................
$45,000
2013 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-