"For disallowance of deduction for taxes paid under this section, see section 275.", (2) CLERICAL AMENDMENT.-The table of sections for chapter 43 is amended by inserting after the item relating to section 4971 the following new item: "Sec. 4972. Tax on excess contributions for self-employed individuals.". (g) PREMATURE DISTRIBUTIONS TO OWNER-EMPLOYEES — (1) IN GENERAL.-Subparagraph (B) of section 72(m) (5) 26 USC 72. (relating to penalties applicable to certain amounts received by owner-employees) is amended to read as follows: "(B) If a (2) CONFORMING AMENDMENTS.— (A) Subparagraphs (C), (D), and (E) of section 72(m) Repeals, (5) are repealed. (B) The second sentence of section 46(a)(3) and the sec- (C) The third sentence of section 901(a), as amended by (D) Subparagraph (A) of section 56 (a) (2) and para- (E) Section 404 (a) (2) is amended by striking out “(16)" (F) Clause (ii) of section 404 (a)(9)(B) is amended to read as follows: "(ii) without regard to the second sentence of paragraph (3); and”. (h) WITHDRAWAL OF EMPLOYEE CONTRIBUTIONS OF OWNEREMPLOYEES. (1) Section 401 (d) (4) (B) (relating to additional requirements for qualification of trusts and plans benefiting owneremployees) is amended by inserting "in excess of contributions made by an owner-employee as an employee" after "benefits". (2) Paragraph (1) of section 72(m) (relating to certain Repeal. amounts received before annuity starting date) is repealed. (3) Section 72(m) (5)(A)(i) is amended by striking out "(whether or not paid by him)" and inserting in lieu thereof the following: "(other than contributions made by him as an owneremployee)". (i) EFFECTIVE DATES. (1) The amendments made by subsections (a) and (b) apply to taxable years beginning after December 31, 1973. 26 USC 404 note. 88 STAT. 958 26 USC 401 note. Ante, p. 952. 26 USC 1379. 26 USC 72 note. 26 USC 211. Pub. Law 93-406 - 130 September 2, 1974 (2) The amendments made by subsection (c) apply to- (3) The amendments made by subsection (d) apply to taxable years beginning after December 31, 1975. (4) The amendments made by subsections (e) and (f) apply to contributions made in taxable years beginning after December 31, 1975. (5) The amendments made by subsection (g) apply to distributions made in taxable years beginning after December 31, 1975. (6) The amendments made by subsection (h) apply to taxable years ending after the date of enactment of this Act. SEC. 2002. DEDUCTION FOR RETIREMENT SAVINGS. (1) IN GENERAL-Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 219 as 220 and by inserting after section 218 the following new section: "SEC. 219. RETIREMENT SAVINGS. "(a) DEDUCTION ALLOWED.-In the case of an individual, there is allowed as a deduction amounts paid in cash during the taxable year by or on behalf of such individual for his benefit “(1) to an individual retirement account described in section 408(a), “(2) for an individual retirement annuity described in section 408(b), or "(3) for a retirement bond described in section 409 (but only if the bond is not redeemed within 12 months of the date of its issuance). For purposes of this title, any amount paid by an employer to such a retirement account or for such a retirement annuity or retirement bond constitutes payment of compensation to the employee (other than a self-employed individual who is an employee within the meaning of section 401 (c) (1) includible in his gross income, whether or not a deduction for such payment is allowable under this section to the employee after the application of subsection (b). "(b) LIMITATIons and RestriCTIONS.— "(1) MAXIMUM DEDUCTION.-The amount allowable as a deduction under subsection (a) to an individual for any taxable year may not exceed an amount equal to 15 percent of the compensation includible in his gross income for such taxable year, or $1,500, whichever is less. "(2) COVERED BY CERTAIN OTHER PLANS.-No deduction is allowed under subsection (a) for an individual for the taxable year if for any part of such year— "(A) he was an active participant in "(i) a plan described in section 401 (a) which includes a trust exempt from tax under section 501 (a), “(ii) an annuity plan described in section 403(a), “(iii) a qualified bond purchase plan described in section 405 (a), or "(iv) a plan established for its employees by the United States, by a State or political division thereof, or by an agency or instrumentality of any of the foregoing, or "(B) amounts were contributed by his employer for an annuity contract described in section 403(b) (whether or not 26 USC 403. his rights in such contract are nonforfeitable). "(3) CONTRIBUTIONS AFTER AGE 701.-No deduction is allowed under subsection (a) with respect to any payment described in subsection (a) which is made during the taxable year of an individual who has attained age 702 before the close of such taxable year. Post, pp. 991, "(4) RECONTRIBUTED AMOUNTS.-No deduction is allowed under this section with respect to a rollover contribution described in section 402 (a) (5), 403 (a) (4), 408 (d) (3), or 409 (b) (3) (C). "(5) AMOUNTS CONTRIBUTED UNDER ENDOWMENT CONTRACT.- 969, 964. Supra. In the case of an endowment contract described in section 408(b), no deduction is allowed under subsection (a) for that portion of the amounts paid under the contract for the taxable year properly allocable, under regulations prescribed by the Secretary or his delegate, to the cost of life insurance. "(c) DEFINITIONS AND SPECIAL RULES.— "(1) COMPENSATION.-For purposes of this section, the term 'compensation' includes earned income as defined in section 401 (c) (2). "(2) MARRIED INDIVIDUALS.-The maximum deduction under subsection (b) (1) shall be computed separately for each individual, and this section shall be applied without regard to any community property laws.". (2) DEDUCTION ALLOWED IN ARRIVING AT ADJUSTED GROSS INCOME.-Section 62 (defining adjusted gross income) is amended by inserting after paragraph (9) the following new paragraph: "(10) RETIREMENT SAVINGS.-The deduction allowed by section 219 (relating to deduction of certain retirement savings).". (b) INDIVIDUAL RETIREMENT ACCOUNTS.-Subpart A of part I of subchapter D of chapter 1 (relating to retirement plans) is amended 26 USC 401. by adding at the end thereof the following new section: "SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS. "(a) INDIVIDUAL RETIREMENT ACCOUNT.-For purposes of this section, the term 'individual retirement account' means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements: "(1) Except in the case of a rollover contribution described in subsection (d) (3) in section 402 (a) (5), 403 (a) (4), or 409 (b) (3) (C), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year in excess of $1,500 on behalf of any individual. "(2) The trustee is a bank (as defined in section 401 (d) (1)) or such other person who demonstrates to the satisfaction of the Secretary or his delegate that the manner in which such other person will administer the trust will be consistent with the requirements of this section. "(3) No part of the trust funds will be invested in life insurance contracts. "(4) The interest of an individual in the balance in his account is non forfeitable. "(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund. Pub. Law 93-406 88 STAT. 960 - 132 September 2, 1974 "(6) The entire interest of an individual for whose benefit the trust is maintained will be distributed to him not later than the close of his taxable year in which he attains age 702, or will be distributed, commencing before the close of such taxable year, in accordance with regulations prescribed by the Secretary or his delegate, over "(A) the life of such individual or the lives of such individual and his spouse, or "(B) a period not extending beyond the life expectancy of such individual or the life expectancy of such individuai and his spouse. "(7) If an individual for whose benefit the trust is maintained dies before his entire interest has been distributed to him, or if distribution has been commenced as provided in paragraph (6) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will, within 5 years after his death (or the death of the surviving spouse), be distributed, or applied to the purchase of an immediate annuity for his beneficiary or beneficiaries (or the beneficiary or beneficiaries of his surviving spouse) which will be payable for the life of such beneficiary or beneficiaries (or for a term certain not extending beyond the life expectancy of such beneficiary or beneficiaries) and which annuity will be immediately distributed to such beneficiary or beneficiaries. The preceding sentence does not apply if distributions over a term certain commenced before the death of the individual for whose benefit the trust was maintained and the term certain is for a period permitted under paragraph (6). "(b) INDIVIDUAL RETIREMENT ANNUITY.-For purposes of this section, the term 'individual retirement annuity' means an annuity contract, or an endowment contract (as determined under regulations prescribed by the Secretary or his delegate), issued by an insurance company which meets the following requirements: "(1) The contract is not transferable by the owner. "(2) The annual premium under the contract will not exceed $1,500 and any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits. "(3) The entire interest of the owner will be distributed to him not later than the close of his taxable year in which he attains age 7012, or will be distributed, in accordance with regulations prescribed by the Secretary or his delegate, over "(A) the life of such owner or the lives of such owner and his spouse, or "(B) a period not extending beyond the life expectancy of such owner or the life expectancy of such owner and his spouse. "(4) If the owner dies before his entire interest has been distributed to him, or if distribution has been commenced as provided in paragraph (3) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) will, within 5 years after his death (or the death of the surviving spouse), be distributed, or applied to the purchase of an immediate annuity for his beneficiary or beneficiaries (or the beneficiary or beneficiaries of his surviving spouse) which will be payable for the life of such bene ficiary or beneficiaries (or for a term certain not extending beyond the life expectancy of such beneficiary or beneficiaries) and which annuity will be immediately distributed to such beneficiary or beneficiaries. The preceding sentence shall have no application if distributions over a term certain commenced before the death of the owner and the term certain is for a period permitted under paragraph (3). "(5) The entire interest of the owner is nonforfeitable. Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application of subsection (e) or for any subsequent taxable year. For purposes of this subsection, no contract shall be treated as an endowment contract if it matures later than the taxable year in which the individual in whose name such contract is purchased attains age 702; if it is not for the exclusive benefit of the individual in whose name it is purchased or his beneficiaries; or if the aggregate annual premiums under all such contracts purchased in the name of such individual for any taxable year exceed $1,500. 88 STAT. 961 "(c) ACCOUNTS ESTABLISHED BY EMPLOYERS AND CERTAIN A880CIATIONS OF EMPLOYEES.—A trust created or organized in the United States by an employer for the exclusive benefit of his employees or their beneficiaries, or by an association of employees (which may include employees within the meaning of section 401 (c) (1)) for the 26 USC 401. exclusive benefit of its members or their beneficiaries, shall be treated as an individual retirement account (described in subsection (a)), but only if the written governing instrument creating the trust meets the following requirements: "(1) The trust satisfies the requirements of paragraphs (1) through (7) of subsection (a). "(2) There is a separate accounting for the interest of each employee or member. The assets of the trust may be held in a common fund for the account of all individuals who have an interest in the trust. "(d) TAX TREATMENT OF DISTRIBUTIONS.— "(1) IN GENERAL.-Except as otherwise provided in this subsection, any amount paid or distributed out of an individual retirement account or under an individual retirement annuity shall be included in gross income by the payee or distributee, as the case may be, for the taxable year in which the payment or distribution is received. The basis of any person in such an account or annuity is zero. "(2) DISTRIBUTIONS OF ANNUITY CONTRACTS.-Paragraph (1) does not apply to any annuity contract which meets the requirements of paragraphs (1), (3), (4), and (5) of subsection (b) and which is distributed from an individual retirement account. Section 72 applies to any such annuity contract, and for pur- 26 USC 72. poses of section 72 the investinent in such contract is zero. "(3) ROLLOVER CONTRIBUTION.--An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B). "(A) IN GENERAL.-Paragraph (1) does not apply to any amount paid or distributed out of an individual retirement account or individual retirement annuity to the individual for whose benefit the account or annuity is maintained if "(i) the entire amount received (including money and any other property) is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) or retirement bond |