Text: H.R.1406 — 102nd Congress (1991-1992)All Information (Except Text)

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HR 1406 IH
102d CONGRESS
1st Session
 H. R. 1406
To amend the Internal Revenue Code of 1986 to encourage savings and investment
through individual retirement accounts, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
March 12, 1991
Mr. PICKLE (for himself, Mr. THOMAS of California, Mr. ANDREWS of Texas,
Mr. SCHULZE, and Mr. MAZZOLI) introduced the following bill; which was
referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to encourage savings and investment
through individual retirement accounts, and for other purposes.
  Be it enacted by the Senate and House of Representatives of the United
  States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
  (a) SHORT TITLE- This Act may be cited as the `Savings and Investment
  Incentive Act of 1991'.
  (b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided,
  whenever in this Act an amendment 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 provision 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 thereof the following
  new paragraph:
  `(5) TERMINATION- This subsection shall not apply to any designated
  nondeductible contribution for any taxable year beginning after December
  31, 1990.'
  (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, 1990.
SEC. 102. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.
  (a) IN GENERAL- Section 219, as amended by section 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) IN GENERAL- If this subsection applies to any calendar year, then each
  applicable dollar amount for any taxable year beginning in the adjustment
  period for such calendar year shall be equal to the sum of--
  `(A) such applicable dollar amount for taxable years beginning in such
  calendar year, plus
  `(B) $500.
  `(2) YEARS TO WHICH SUBSECTION APPLIES- This subsection shall apply to
  any calendar year if the excess (if any) of--
  `(A) $2,000, increased by the cost-of-living adjustment for such calendar
  year, over
  `(B) the applicable dollar amount in effect under subsection (b)(1)(A)
  for such calendar year,
is equal to or greater than $500.
  `(3) COST-OF-LIVING ADJUSTMENT- For purposes of this subsection--
  `(A) IN GENERAL- The cost-of-living adjustment for any calendar year is
  the percentage (if any) by which--
  `(i) the CPI for such calendar year, exceeds
  `(ii) the CPI for 1991.
  `(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).
  `(4) APPLICABLE DOLLAR AMOUNT- For purposes of this subsection, the term
  `applicable dollar amount' means the dollar amount in effect under any of
  the following provisions:
  `(A) Subsection (b)(1)(A).
  `(B) Subsection (c)(2)(A)(i).
  `(C) The last sentence of subsection (c)(2).
  `(5) ADJUSTMENT PERIOD- For purposes of this subsection, the term `adjustment
  period' means, with respect to any calendar year to which this subsection
  applies, the period--
  `(A) beginning on the 1st day of the calendar year following such calendar
  year, and
  `(B) ending on the last day of the next calendar year to which this
  subsection applies.'
  (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 striking `$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'.
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. SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS.
  `(a) GENERAL RULE- Except as provided in this section, a special individual
  retirement account shall be treated for purposes of this title in the same
  manner as an individual retirement plan.
  `(b) SPECIAL INDIVIDUAL RETIREMENT ACCOUNT- For purposes of this title,
  the term `special individual retirement account' means an individual
  retirement plan which is designated at the time of establishment of the
  plan as a special individual retirement account.
  `(c) TREATMENT OF CONTRIBUTIONS-
  `(1) NO DEDUCTION ALLOWED- No deduction shall be allowed under section
  219 for a contribution to a special individual retirement account.
  `(2) CONTRIBUTION LIMIT- The aggregate amount of contributions for any
  taxable year to all special individual retirement accounts maintained for
  the benefit of an individual shall not exceed the excess (if any) of--
  `(A) the maximum amount allowable as a deduction under section 219 with
  respect to such individual for such taxable year, over
  `(B) the amount so allowed.
  `(3) ROLLOVER CONTRIBUTIONS-
  `(A) IN GENERAL- No rollover contribution may be made to a special
  individual retirement account unless such contribution consists of a
  payment or distribution out of another special individual retirement account.
  `(B) COORDINATION WITH LIMIT- A rollover contribution shall not be taken
  into account for purposes of paragraph (2).
  `(d) TAX TREATMENT OF DISTRIBUTIONS-
  `(1) IN GENERAL- Except as provided in this subsection, any amount paid
  or distributed out of a special individual retirement account shall not
  be included in the gross income of the distributee.
  `(2) Exception for earnings on contributions held less than 5 years-
  `(A) IN GENERAL- Any amount distributed out of a special individual
  retirement account which consists of earnings allocable to contributions
  made to the account during the 5-year period ending on the day before such
  distribution shall be included in the gross income of the distributee for
  the taxable year in which the distribution occurs.
  `(B) CROSS REFERENCE-
 `For additional tax for early withdrawal, see section 72(t).
  `(C) ORDERING RULE-
  `(i) FIRST-IN, FIRST-OUT RULE- Distributions from a special individual
  retirement account shall be treated as having been made--
  `(I) first from the earliest contribution (and earnings allocable thereto)
  remaining in the account at the time of the distribution, and
  `(II) then from other contributions (and earnings allocable thereto)
  in the order in which made.
  `(ii) ALLOCATIONS BETWEEN CONTRIBUTIONS 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 contribution
  in such manner as the Secretary may by regulations prescribe.
  `(iv) CONTRIBUTIONS IN SAME YEAR- Under regulations, all contributions
  made during the same taxable year may be treated as 1 contribution for
  purposes of this subparagraph.
  `(3) Rollovers-
  `(A) IN GENERAL- Paragraph (2) shall not apply to any distribution which
  is transferred to another special individual retirement account.
  `(B) CONTRIBUTION PERIOD- For purposes of paragraph (2), the special
  individual retirement account to which any contributions are transferred
  from another special individual retirement account shall be treated as
  having held such contributions during any period such contributions were
  held (or are treated as held under this subparagraph) by the account from
  which transferred.'
  (b) EARLY WITHDRAWAL PENALTY- Section 72(t), as amended by section 201(c),
  is amended by adding at the end thereof the following new paragraph:
  `(8) RULES RELATING TO SPECIAL INDIVIDUAL RETIREMENT ACCOUNTS- In the case
  of a special individual retirement 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
  thereof 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 sections 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. Special individual retirement accounts.'
  (e) EFFECTIVE DATE- The amendments made by this section shall apply to
  taxable years beginning after December 31, 1990.
TITLE II--PENALTY-FREE DISTRIBUTIONS
SEC. 201. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY TO
PURCHASE FIRST HOMES OR TO PAY HIGHER EDUCATION 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 thereof the following
  new subparagraph:
  `(D) DISTRIBUTIONS FROM CERTAIN PLANS FOR FIRST HOME PURCHASES OR EDUCATIONAL
  EXPENSES- Distributions to an individual 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)--
  `(i) which are qualified first-time homebuyer 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 EXPENSES- Section 72(t)(3)(A) is
  amended by striking `(B),'.
  (c) DEFINITIONS- Section 72(t) is amended by adding at the end thereof
  the following new paragraphs:
  `(6) QUALIFIED FIRST-TIME HOMEBUYER DISTRIBUTIONS- 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 individual 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 acquisition costs with respect to a principal
  residence of a first-time homebuyer who is such individual or the child
  or grandchild of such individual.
  `(B) QUALIFIED ACQUISITION COSTS- For purposes of this paragraph, the term
  `qualified acquisition costs' means the costs of acquiring, constructing,
  or reconstructing a residence. Such term includes any usual or reasonable
  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
  individual 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 residence
  to which this paragraph applies.
  `(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 entered into, or
  `(II) on which construction or reconstruction of such a principal residence
  is commenced.
  `(D) SPECIAL RULE WHERE DELAY IN ACQUISITION- If--
  `(i) any amount is paid or distributed from an individual retirement plan to
  an individual for purposes of being used as provided in subparagraph (A), and
  `(ii) by reason of a delay in the acquisition of the residence, the
  requirements of subparagraph (A) cannot be met,
the amount so paid or distributed may be paid into an individual retirement
plan as provided in section 408(d)(3)(A)(i) without regard to section
408(d)(3)(B), and, if so paid into such other plan, such amount shall not
be taken into account in determining whether section 408(d)(3)(A)(i) applies
to any other amount.
  `(7) QUALIFIED HIGHER EDUCATION EXPENSES- 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) the taxpayer's child (as defined in section 151(c)(3)) or grandchild,
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) Conforming Amendments-
  (1) Section 401(k)(2)(B)(i) 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 qualified first-time homebuyer distributions
  (as defined in section 72(t)(6)) or distributions for qualified higher
  education 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 distributions (as defined in section
  72(t)(6)) or for the payment of qualified higher education expenses (as
  defined in section 72(t)(7)).'
  (e) EFFECTIVE DATE- The amendments made by this section shall apply to
  payments and distributions after the date of the enactment of this Act.