< Back to H.R. 5006 (103rd Congress, 1993–1994)

Text of the Savings and Investment Incentive Act of 1994

This bill was introduced on August 20, 1994, in a previous session of Congress, but was not enacted. The text of the bill below is as of Aug 20, 1994 (Introduced).

Source: GPO

HR 5006 IH

103d CONGRESS

2d Session

H. R. 5006

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

August 20, 1994

Mr. PICKLE (for himself, Mr. THOMAS of California, Mr. NEAL of Massachusetts, Mr. MAZZOLI, Mr. GEKAS, Mr. ANDREWS of Texas, Mrs. JOHNSON of Connecticut, Mr. SUNDQUIST, Mr. CRANE, Mr. MCNULTY, Mr. HANCOCK, Mr. ACKERMAN, Mr. FIELDS of Texas, Mr. LIPINSKI, Mr. GENE GREEN of Texas, Mr. HUTTO, Mr. WILSON, Ms. ESCHOO, Mr. LEVY, Mr. FAZIO, Mr. JEFFERSON, Mr. MCCRERY, Mr. FISH, Mr. SARPALIUS, Mr. HASTINGS, Mr. HAYES, Ms. EDDIE BERNICE JOHNSON of Texas, Mr. BROWN of California, Mr. FROST, Mr. EMERSON, Mr. GREENWOOD, Mr. PACKARD, Mr. LEWIS of California, Mr. HYDE, Mr. DOOLITTLE, Mr. ROGERS, Mr. LEWIS of Florida, Mr. HEFNER, Mr. EVANS, Mr. RAHALL, Mr. SWIFT, Mr. HANSEN, Mr. BRYANT, Mr. SPENCE, Mr. CALLAHAN, Mr. CAMP, Mr. TORKILDSEN, Mr. CALVERT, Mr. BEVILL, Mr. SENSENBRENNER, Mr. HALL of Texas, Mr. ROMERO-BARCELO, Mr. LIVINGSTON, Mr. PARKER, Mr. SAXTON, Mr. CHAPMAN, Mr. MARTINEZ, Mr. HERGER, Mr. SAWYER, Mr. MINGE, and Mr. PETE GEREN of Texas) 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 1994’.

    (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 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 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) 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 increased under subparagraph (A) is not a multiple 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 increased at the same time, and by the same amount, as the increase under paragraph (1).

      ‘(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 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 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’.

SEC. 103. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

    (a) SPOUSAL IRA COMPUTED ON BASIS OF COMPENSATION OF BOTH SPOUSES- Subsection (c) of section 219 (relating to special rules for certain married individuals) is amended to read as follows:

    ‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDIVIDUALS-

      ‘(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 taxable 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 taxable year.

      ‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1) APPLIES- Paragraph (1) shall apply to any individual 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 individual’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 retirement plan.

    ‘(b) IRA PLUS ACCOUNT- For purposes of this title, the term ‘IRA Plus account’ means an individual retirement plan which is designated at the time of establishment 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.

      ‘(2) CONTRIBUTION LIMIT- The aggregate amount of contributions for any taxable year to all IRA Plus 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 an IRA Plus account unless such contribution consists of a payment or distribution out of another IRA Plus 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 an IRA Plus 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 an IRA Plus 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 an IRA Plus 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 IRA Plus account.

        ‘(B) CONTRIBUTION PERIOD- For purposes 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 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 the following new paragraph:

      ‘(8) RULES RELATING TO IRA PLUS ACCOUNTS- 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 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. 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 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 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-

      (1) IN GENERAL- Section 72(t)(3)(A) is amended by striking ‘(B),’.

      (2) CERTAIN LINEAL DESCENDANTS AND ANCESTORS TREATED AS DEPENDENTS- Subparagraph (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 taxable year, and

          ‘(ii) by treating such employee’s dependents as including--

            ‘(I) all children and grandchildren of the employee or such employee’s spouse, and

            ‘(II) all ancestors of the employee 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 adding at the end 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, 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 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--

            ‘(I) 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, 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 entered into, or

            ‘(II) on which construction or reconstruction of such a principal residence is commenced.

        ‘(D) SPECIAL RULE WHERE DELAY IN ACQUISITION- If any distribution from any individual retirement plan fails to meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction 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 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) 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 INDIVIDUALS- A distribution from an individual retirement plan to an individual after separation from employment, if--

          ‘(i) such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation, and

          ‘(ii) such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year.

        To the extent provided in regulations, a self-employed 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 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)).’.

    (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 DESIGNATED 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 preceding 4 months or became ineligible for such aid during 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 following 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 which, after such placement, does not exceed $8,000;’.

      (3) TREATMENT AS INCOME- Section 402(a)(7) of such Act (42 U.S.C. 602(a)(7)) is amended--

        (A) by striking ‘and’ at the end of subparagraph (B),

        (B) by striking the semicolon at the end of subparagraph (C) and inserting ‘; and’, and

        (C) by adding at the end the following new subparagraph:

        ‘(D) shall treat as income any distributions from a qualified asset account (as defined in section 406(i)(1)) which do not meet the definition of a qualified distribution under section 406(i)(2);’.

    (c) QUALIFIED ASSET ACCOUNTS- Section 406 of such Act (42 U.S.C. 606) is amended by adding at the end the following:

    ‘(i)(1) The term ‘qualified asset account’ means a mechanism approved by the State (such as individual retirement accounts, escrow accounts, or savings bonds) that allows savings of a family receiving aid to families with dependent children to be used for qualified distributions.

    ‘(2) The term ‘qualified distributions’ means distributions for expenses directly related to one or more of the following purposes:

      ‘(A) The attendance of a member of the family at any education or training program.

      ‘(B) The improvement of the employability (including self-employment) of a member of the family (such as through the purchase of an automobile).

      ‘(C) The purchase of a home for the family.

      ‘(D) A change of the family residence.’.

    (d) STUDY OF USE OF QUALIFIED ASSET ACCOUNTS; REPORT- The Secretary of Health and Human Services shall conduct a study of the use of qualified asset accounts established pursuant to the amendments made by this section, and shall report on such study and any recommendations for modifications of such amendments to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives not later than January 1, 1998.

    (e) REPORT ON AFDC ASSET LIMIT ON AUTOMOBILES- Within 3 months after the date of the enactment of this section, the Secretary of Health and Human Services shall submit to the Congress a report on--

      (1) the need to revise the limitation, established in regulations pursuant to section 402(a)(7)(B)(i) of the Social Security Act, on the value of a family automobile required to be disregarded by a State in determining the eligibility of the family for aid to families with dependent children under the State plan approved under part A of title IV of such Act, and

      (2) the extent to which such a revision would increase the employability of recipients of such aid.

    (f) EFFECTIVE DATE- The amendments made by this section shall take effect on October 1, 1995, with respect to accounts approved on or after such date and before October 1, 1998.