SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Savings and Investment Incentive Act of 1994’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
TITLE I—RETIREMENT SAVINGS
INCENTIVES
Subtitle A—Restoration of IRA
Deduction
SEC. 101. RESTORATION OF IRA DEDUCTION.
(a) IN GENERAL.—Section 219 (relating to deduction
for retirement savings) is amended by striking subsection
(g) and by redesignating subsection (h) as subsection (g).
(b) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 219 is amended by
striking paragraph (7).
(2) Paragraph (5) of section 408(d) is amended
by striking the last sentence.
(3) Section 408(o) is amended by adding at the
end the following new paragraph:
‘‘(5) TERMINATION.—This subsection shall not
apply to any designated nondeductible contribution
for any taxable year beginning after December 31,
1994.’’.
(4) Subsection (b) of section 4973 is amended
by striking the last sentence.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
SEC. 102. INFLATION ADJUSTMENT FOR DEDUCTIBLE
AMOUNT.
(a) IN GENERAL.—Section 219, as amended by sec-
tion 101, is amended by redesignating subsection (g) as
subsection (h) and by inserting after subsection (f) the
following new subsection:
‘‘(g) COST-OF-LIVING ADJUSTMENTS.—
‘‘(1) DEDUCTION AMOUNT.—
‘‘(A) IN
GENERAL.—In the case of any
taxable year beginning in a calendar year after
1995, the $2,000 amount under subsection
(b)(1)(A) shall be increased by an amount equal
to the product of $2,000 and the cost-of-living
adjustment for the calendar year.
‘‘(B) ROUNDING TO NEXT LOWEST $500.—
If the amount to which $2,000 would be in-
creased under subparagraph (A) is not a mul-
tiple of $500, such amount shall be rounded to
the next lowest multiple of $500.
‘‘(2) RELATED AMOUNTS.—Each of the dollar
amounts contained in subsection (c)(2) shall be in-
creased at the same time, and by the same amount,
as the increase under paragraph (1).
‘‘(3) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of this subsection:
‘‘(A) IN GENERAL.—The cost-of-living ad-
justment for any calendar year is the percent-
age (if any) by which—
‘‘(i) the CPI for such calendar year,
exceeds
‘‘(ii) the CPI for 1994.
‘‘(B) CPI FOR ANY CALENDAR YEAR.—The
CPI for any calendar year shall be determined
in the same manner as under section 1(f)(4).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking
‘‘in excess of $2,000 on behalf of any individual’’
and inserting ‘‘on behalf of any individual in excess
of the amount in effect for such taxable year under
section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by strik-
ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in
effect under section 219(b)(1)(A)’’.
(3) Section 408(j) is amended by striking
‘‘$2,000’’.
SEC. 103. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUC-
TION.
(a) SPOUSAL IRA COMPUTED ON BASIS OF COM-
PENSATION OF BOTH SPOUSES.—Subsection (c) of section
219 (relating to special rules for certain married individ-
uals) is amended to read as follows:
‘‘(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) $2,000, 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 the
amount allowable as a deduction under
subsection (a) to such spouse for such tax-
able year.
‘‘(2) INDIVIDUALS
TO
WHOM
PARAGRAPH
(1)
APPLIES.—Paragraph (1) shall apply to any individ-
ual 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.’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 219(f) (relating to
other definitions and special rules) is amended by
striking ‘‘subsections (b) and (c)’’ and inserting
‘‘subsection (b)’’.
(2) Paragraph (2) of section 219(g), as added
by section 102, is amended by striking ‘‘Each of the
dollar amounts’’ and inserting ‘‘The dollar amount’’.
(3) Section 408(d)(5) is amended by striking
‘‘$2,250’’ and inserting ‘‘$2,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
Subtitle B—Nondeductible Tax-
Free IRAs
SEC. 111. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE
INDIVIDUAL RETIREMENT ACCOUNTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to pension, profit-sharing, stock
bonus plans, etc.) is amended by inserting after section
408 the following new section:
‘‘SEC. 408A. IRA PLUS ACCOUNTS.
‘‘(a) GENERAL RULE.—Except as provided in this
section, an IRA Plus account shall be treated for purposes
of this title in the same manner as an individual retire-
ment plan.
‘‘(b) IRA PLUS ACCOUNT.—For purposes of this
title, the term ‘IRA Plus account’ means an individual re-
tirement plan which is designated at the time of establish-
ment of the plan as an IRA Plus account.
‘‘(c) TREATMENT OF CONTRIBUTIONS.—
‘‘(1) NO DEDUCTION ALLOWED.—No deduction
shall be allowed under section 219 for a contribution
to an IRA Plus account.
of earnings allocable to contributions made to
the account during the 5-year period ending on
the day before such distribution shall be in-
cluded in the gross income of the distributee for
the taxable year in which the distribution oc-
curs.
‘‘(B) CROSS REFERENCE.—
‘‘For additional tax for early withdrawal, see sec-
tion 72(t).
‘‘(C) ORDERING RULE.—
‘‘(i) FIRST-IN, FIRST-OUT
RULE.—
Distributions from an IRA Plus account
shall be treated as having been made—
‘‘(I) first from the earliest con-
tribution 
(and 
earnings 
allocable
thereto) remaining in the account at
the time of the distribution, and
‘‘(II) then from other contribu-
tions (and earnings allocable thereto)
in the order in which made.
‘‘(ii) ALLOCATIONS
BETWEEN
CON-
TRIBUTIONS AND EARNINGS.—Any portion
of a distribution allocated to a contribution
(and earnings allocable thereto) shall be
treated as allocated first to the earnings
and then to the contribution.
‘‘(iii) ALLOCATION
OF
EARNINGS.—
Earnings shall be allocated to a contribu-
tion in such manner as the Secretary may
by regulations prescribe.
‘‘(iv) 
CONTRIBUTIONS
IN
SAME
YEAR.—Under regulations, all contribu-
tions made during the same taxable year
may be treated as 1 contribution for pur-
poses of this subparagraph.
‘‘(3) ROLLOVERS.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall
not apply to any distribution which is trans-
ferred to another IRA Plus account.
‘‘(B) CONTRIBUTION
PERIOD.—For pur-
poses of paragraph (2), the IRA Plus account
to which any contributions are transferred from
another IRS Plus account shall be treated as
having held such contributions during any pe-
riod such contributions were held (or are treat-
ed as held under this subparagraph) by the ac-
count from which transferred.’’.
(b) EARLY WITHDRAWAL PENALTY.—Section 72(t),
as amended by section 201(c), is amended by adding at
the end the following new paragraph:
‘‘(8) RULES
RELATING
TO
IRA
PLUS
AC-
COUNTS.—In the case of an IRA Plus account under
section 408A—
‘‘(A) this subsection shall only apply to
distributions out of such account which consist
of earnings allocable to contributions made to
the account during the 5-year period ending on
the day before such distribution, and
‘‘(B) paragraph (2)(A)(i) shall not apply to
any distribution described in subparagraph
(A).’’.
(c) EXCESS CONTRIBUTIONS.—Section 4973(b) is
amended by adding at the end the following new sentence:
‘‘For purposes of paragraphs (1)(B) and (2)(C), the
amount allowable as a deduction under section 219 shall
be computed without regard to section 408A.’’
(d) 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. IRA Plus accounts.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1994.
TITLE II—PENALTY-FREE
DISTRIBUTIONS
SEC. 201. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE
USED 
WITHOUT 
PENALTY 
TO 
PURCHASE
FIRST HOMES OR TO PAY HIGHER EDU-
CATION 
OR 
FINANCIALLY 
DEVASTATING
MEDICAL EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 72(t)
(relating to exceptions to 10-percent additional tax on
early distributions from qualified retirement plans) is
amended by adding at the end the following new subpara-
graph:
‘‘(D) DISTRIBUTIONS
FROM
CERTAIN
PLANS
FOR FIRST HOME PURCHASES OR EDUCATIONAL EX-
PENSES.—Distributions to an individual from an in-
dividual retirement plan, or from amounts attrib-
utable to employer contributions made pursuant to
elective deferrals described in subparagraph (A) or
(C) 
of 
section 
402(g)(3) 
or 
section
501(c)(18)(D)(iii)—
‘‘(i) which are qualified first-time home-
buyer distributions (as defined in paragraph
(6)), or
‘‘(ii) to the extent such distributions do not
exceed the qualified higher education expenses
(as defined in paragraph (7)) of the taxpayer
for the taxable year.’’.
(b) FINANCIALLY
DEVASTATING
MEDICAL
EX-
PENSES.—
(1) 
IN
GENERAL.—Section 
72(t)(3)(A) 
is
amended by striking ‘‘(B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND AN-
CESTORS
TREATED
AS
DEPENDENTS.—Subpara-
graph (B) of section 72(t)(2) is amended by striking
‘‘medical care’’ and all that follows and inserting
‘‘medical care determined—
‘‘(i) without regard to whether the
employee itemizes deductions for such tax-
able year, and
‘‘(ii) by treating such employee’s de-
pendents as including—
‘‘(I) all children and grand-
children of the employee or such em-
ployee’s spouse, and
‘‘(II) all ancestors of the em-
ployee or such employee’s spouse.’’.
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(C)’’ and inserting ‘‘, (C) or (D)’’.
(c) DEFINITIONS.—Section 72(t) is amended by add-
ing at the end the following new paragraphs:
‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For purposes of paragraph (2)(D)(i):
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ means any
payment or distribution received by an individ-
ual to the extent such payment or distribution
is used by the individual before the close of the
60th day after the day on which such payment
or distribution is received to pay qualified ac-
quisition costs with respect to a principal resi-
dence of a first-time homebuyer who is such in-
dividual, the spouse of such individual, or any
child, grandchild, or ancestor of such individual
or the individual’s spouse.
‘‘(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.
‘‘(C) FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For purposes of this paragraph:
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if—
‘‘(I) such individual (and if mar-
ried, such individual’s spouse) had no
present ownership interest in a prin-
cipal residence during the 2-year pe-
riod ending on the date of acquisition
of the principal residence to which
this paragraph applies, and
‘‘(II) subsection (a)(6), (h), or
(k) of section 1034 did not suspend
the running of any period of time
specified in section 1034 with respect
to such individual on the day before
the date the distribution is applied
pursuant to subparagraph (A)(ii).
‘‘(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 distribution from any indi-
vidual retirement plan fails to meet the require-
ments of subparagraph (A) solely by reason of
a delay or cancellation of the purchase or con-
struction of the residence, the amount of the
distribution may be contributed to an individual
retirement 
plan 
as 
provided 
in 
section
408(d)(3)(A)(i) (determined by substituting
‘120 days’ for ‘60 days’ in such section), except
that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
‘‘(ii) such amount shall not be taken
into account in determining whether sec-
tion 408(d)(3)(A)(i) applies to any other
amount.
‘‘(7) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of paragraph (2)(D)(ii):
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) any child (as defined in section
151(c)(3)), grandchild, or ancestor of the
taxpayer or the taxpayer’s spouse,
at an eligible educational institution (as defined
in section 135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified higher
education expenses for any taxable year shall be
reduced by any amount excludable from gross
income under section 135.’’.
(d) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN
UNEMPLOYED INDIVIDUALS.—Paragraph (2) of section
72(t) is amended by adding at the end the following new
subparagraph:
‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN-
DIVIDUALS.—A distribution from an individual
retirement plan to an individual after separa-
tion from employment, if—
‘‘(i) such individual has received un-
employment compensation for 12 consecu-
tive weeks under any Federal or State un-
employment compensation law by reason of
such separation, and
‘‘(ii) such distributions are made dur-
ing any taxable year during which such un-
employment compensation is paid or the
succeeding taxable year.
To the extent provided in regulations, a self-em-
ployed individual shall be treated as meeting
the requirements of clause (i) if, under Federal
or State law, the individual would have received
unemployment compensation but for the fact
the individual was self-employed.’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 401(k)(2)(B)(i) is amended by
striking ‘‘or’’ at the end of subclause (III), by strik-
ing ‘‘and’’ at the end of subclause (IV) and inserting
‘‘or’’, and by inserting after subclause (IV) the fol-
lowing new subclause:
‘‘(V) the date on which qualified
first-time homebuyer distributions (as
defined in section 72(t)(6)) or dis-
tributions for qualified higher edu-
cation expenses (as defined in section
72(t)(7)) are made, and’’.
(2) Section 403(b)(11) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting
‘‘, or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) for qualified first-time homebuyer dis-
tributions (as defined in section 72(t)(6)) or for
the payment of qualified higher education ex-
penses (as defined in section 72(t)(7)).’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments and distributions after
the date of the enactment of this Act.
TITLE III—AID TO FAMILIES
WITH DEPENDENT CHILDREN
SEC. 301. DISREGARD OF INCOME AND RESOURCES DES-
IGNATED FOR EDUCATION, TRAINING, AND
EMPLOYABILITY.
(a) 
DISREGARD
AS
RESOURCE.—Section
402(a)(7)(B) of the Social Security Act (42 U.S.C.
602(a)(7)(B)) is amended—
(1) by striking ‘‘or’’ before ‘‘(iv)’’, and
(2) by inserting ‘‘, or (v) at the option of the
State, in the case of a family receiving aid under the
State plan (and a family not receiving such aid but
which received such aid in at least 1 of the preced-
ing 4 months or became ineligible for such aid dur-
ing the preceding 12 months because of excessive
earnings), any amount not to exceed $8,000 in a
qualified asset account (as defined in section 406(i))
of such family’’ before ‘‘; and’’.
(b) DISREGARD AS INCOME.—
(1) IN GENERAL.—Section 402(a)(8)(A) of such
Act (42 U.S.C. 602(a)(8)(A)) is amended—
(A) by striking ‘‘and’’ at the end of clause
(vii), and
(B) by inserting after clause (viii) the fol-
lowing new clause:
‘‘(ix) shall disregard any interest or
income earned on a qualified asset account
(as defined in section 406(i)); and’’.
(2) NONRECURRING LUMP SUM EXEMPT FROM
LUMP SUM RULE.—Section 402(a)(17) of such Act
(42 U.S.C. 602(a)(17)) is amended by adding at the
end the following: ‘‘; and that this paragraph shall
not apply to earned or unearned income received in
a month on a nonrecurring basis to the extent that
such income is placed in a qualified asset account
(as defined in section 406(i)) the total amount in