To amend the Internal Revenue Code of 1986 to allow penalty-free withdrawals from retirement plans during the period that a military reservist or national guardsman is called to active duty for an extended period, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Guardsmen and Reservists Financial 
Relief Act of 2005''.

SEC. 2. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR INDIVIDUALS 
              CALLED TO ACTIVE DUTY FOR AT LEAST 179 DAYS.

    (a) In General.--Paragraph (2) of section 72(t) of the Internal 
Revenue Code of 1986 (relating to 10-percent additional tax on early 
distributions from qualified retirement plans) is amended by adding at 
the end the following new subparagraph:
                    ``(G) Distributions from retirement plans to 
                individuals called to active duty.--
                            ``(i) In general.--Any qualified reservist 
                        distribution.
                            ``(ii) Amount distributed may be repaid.--
                        Any individual who receives a qualified 
                        reservist distribution may, at any time during 
                        the 2-year period beginning on the day after 
                        the end of the active duty period, make one or 
                        more contributions to an individual retirement 
                        plan of such individual in an aggregate amount 
                        not to exceed the amount of such distribution. 
                        The dollar limitations otherwise applicable to 
                        contributions to individual retirement plans 
                        shall not apply to any contribution made 
                        pursuant to the preceding sentence. No 
                        deduction shall be allowed for any contribution 
                        pursuant to this clause.
                            ``(iii) Qualified reservist distribution.--
                        For purposes of this subparagraph, the term 
                        `qualified reservist distribution' means any 
                        distribution to an individual if--
                                    ``(I) such distribution is from an 
                                individual retirement plan, or from 
                                amounts attributable 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),
                                    ``(II) such individual was (by 
                                reason of being a member of a reserve 
                                component (as defined in section 101 of 
                                title 37, United States Code)), ordered 
                                or called to active duty for a period 
                                in excess of 179 days or for an 
                                indefinite period, and
                                    ``(III) such distribution is made 
                                during the period beginning on the date 
                                of such order or call and ending at the 
                                close of the active duty period.
                            ``(iv) Application of subparagraph.--This 
                        subparagraph applies to individuals ordered or 
                        called to active duty after September 11, 2001, 
                        and before September 12, 2007. In no event 
                        shall the 2-year period referred to in clause 
                        (ii) end before the date which is 2-years after 
                        the date of the enactment of this 
                        subparagraph.''.
    (b) Conforming Amendments.--
            (1) Section 401(k)(2)(B)(i) of such Code is amended by 
        striking ``or'' at the end of subclause (III), by striking 
        ``and'' at the end of subclause (IV) and inserting ``or'', and 
        by inserting after subclause (IV) the following new subclause:
                                    ``(V) the date on which a period 
                                referred to in section 
                                72(t)(2)(G)(iii)(III) begins, and''.
            (2) Section 403(b)(7)(A)(ii) of such Code is amended by 
        inserting ``unless such amount is a distribution to which 
        section 72(t)(2)(G) applies or'' after ``distributee''.
            (3) Section 403(b)(11) of such Code 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 distributions to which section 
                72(t)(2)(G) applies.''.
    (c) Effective Date; Waiver of Limitations.--
            (1) Effective date.--The amendment made by this section 
        shall apply to distributions after September 11, 2001.
            (2) Waiver of limitations.--If refund or credit of any 
        overpayment of tax resulting from the amendments made by this 
        section is prevented at any time before the close of the 1-year 
        period beginning on the date of the enactment of this Act by 
        the operation of any law or rule of law (including res 
        judicata), such refund or credit may nevertheless be made or 
        allowed if claim therefor is filed before the close of such 
        period.

Summary: Guardsmen and Reservists Financial Relief Act of 2005 - Amends the Internal Revenue Code to exempt from the ten percent penalty on early distributions from tax-exempt retirement plans, withdrawals made by military reservists or national guardsmen called to active duty for a period in excess of 179 days or for an indefinite period. Permits reimbursement of such withdrawals within two years after the end of the active duty period. Applies the provisions of this Act to individuals ordered or called to active duty after September 11, 2001, and before September 12, 2007, for retirement plan distributions made after September 11, 2001.