To amend the Internal Revenue Code of 1986 to waive the 10 percent penalty on withdrawals from qualified retirement plans upon receipt of notice of foreclosure on a principal residence.

SECTION 1. WAIVER OF 10 PERCENT PENALTY ON WITHDRAWALS FROM QUALIFIED 
              RETIREMENT PLANS UPON RECEIPT OF NOTICE OF FORECLOSURE ON 
              A PRINCIPAL RESIDENCE.

    (a) In General.--Paragraph (2) of section 72(t) of the Internal 
Revenue Code of 1986 (relating to subsection not to apply to certain 
distributions) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Qualified foreclosure distributions.--
                Distributions to an individual which are qualified 
                foreclosure distributions (as defined in paragraph 
                (11)). Distributions shall not be taken into account 
                under the preceding sentence if such distributions are 
                described in subparagraph (A), (C), (D), (E), (F), or 
                (G) or to the extent paragraph (1) does not apply to 
                such distributions by reason of subparagraph (B).''.
    (b) Qualified Foreclosure Distributions.--Subsection (t) of section 
72 of such Code (relating to 10 percent additional tax on early 
distributions from qualified retirement plans) is amended by adding at 
the end the following new paragraph:
            ``(11) Qualified foreclosure distributions.--For purposes 
        of paragraph (2)(H)--
                    ``(A) In general.--The term `qualified foreclosure 
                distribution' means any payment or distribution 
                received after July 31, 2007, and before January 1, 
                2011, by an individual after the individual has 
                received a foreclosure notice relating to any mortgage 
                on the principal residence (within the meaning of 
                section 121) of the individual.
                    ``(B) Limitation.--The amount of payments or 
                distributions received by an individual which may be 
                treated as qualified foreclosure distributions for any 
                taxable year shall not exceed the excess (if any) of--
                            ``(i) $30,000, over
                            ``(ii) the aggregate amounts treated as 
                        qualified foreclosure distributions with 
                        respect to such individual for all prior 
                        taxable years.
                    ``(C) Amount distributed may be repaid.--
                            ``(i) In general.--Any individual who 
                        receives a qualified foreclosure distribution 
                        may, at any time during the 5-year period 
                        beginning on the day after the date on which 
                        such distribution was received, make one or 
                        more contributions in an aggregate amount not 
                        to exceed the amount of such distribution to an 
                        eligible retirement plan of which such 
                        individual is a beneficiary and to which a 
                        rollover contribution of such distribution 
                        could be made under section 402(c), 403(a)(4), 
                        403(b)(8), 408(d)(3), or 457(e)(16), as the 
                        case may be.
                            ``(ii) Treatment of repayments of 
                        distributions from eligible retirement plans 
                        other than iras.--For purposes of this title, 
                        if a contribution is made pursuant to clause 
                        (i) with respect to a qualified foreclosure 
                        distribution from an eligible retirement plan 
                        other than an individual retirement plan, then 
                        the taxpayer shall, to the extent of the amount 
                        of the contribution, be treated as having 
                        received the qualified foreclosure distribution 
                        in an eligible rollover distribution (as 
                        defined in section 402(c)(4)) and as having 
                        transferred the amount to the eligible 
                        retirement plan in a direct trustee to trustee 
                        transfer within 60 days of the distribution.
                            ``(iii) Treatment of repayments for 
                        distributions from iras.--For purposes of this 
                        title, if a contribution is made pursuant to 
                        clause (i) with respect to a qualified 
                        foreclosure distribution from an individual 
                        retirement plan (as defined by section 
                        7701(a)(37)), then, to the extent of the amount 
                        of the contribution, the qualified foreclosure 
                        distribution shall be treated as a distribution 
                        described in section 408(d)(3) and as having 
                        been transferred to the eligible retirement 
                        plan in a direct trustee to trustee transfer 
                        within 60 days of the distribution.
                    ``(D) Income inclusion spread over 5-year period.--
                            ``(i) In general.--In the case of any 
                        qualified foreclosure distribution, unless the 
                        taxpayer elects not to have this subparagraph 
                        apply for any taxable year, any amount required 
                        to be included in gross income for such taxable 
                        year shall be so included ratably over the 5-
                        taxable-year period beginning with such taxable 
                        year.
                            ``(ii) Special rule.--For purposes of 
                        clause (i), rules similar to the rules of 
                        subparagraph (E) of section 408A(d)(3) shall 
                        apply.
                    ``(E) Special rules.--
                            ``(i) Exemption of distributions from 
                        trustee to trustee transfer and withholding 
                        rules.--For purposes of sections 401(a)(31), 
                        402(f), and 3405, qualified foreclosure 
                        distributions shall not be treated as eligible 
                        rollover distributions.
                            ``(ii) Qualified foreclosure distributions 
                        treated as meeting plan distribution 
                        requirements.--For purposes this title, a 
                        qualified foreclosure distribution shall be 
                        treated as meeting the requirements of sections 
                        401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), 
                        and 457(d)(1)(A).''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

Summary: Amends the Internal Revenue Code to exempt a taxpayer from the 10% penalty on premature withdrawals from tax-exempt retirement plans if such taxpayer received a foreclosure notice relating to a mortgage on a principal residence and makes a withdrawal from a retirement account after July 31, 2007, and before January 1, 2011.