TOTAL DISTRIBUTIONS FROM QUALIFIED PENSION, ETC., PLANS.

SEC. 515. TOTAL DISTRIBUTIONS FROM QUALIFIED PENSION, ETC., PLANS. (a) Limitation on Capital Gains Treatment.— (1) Employees’ trust.—Section 402(a) (relating to taxability of beneficiary of exempt trust) is amended by adding at the end thereof the following new paragraph: “(5) Limitation on capital gains treatment.—The first 83 Stat. 644 sentence of paragraph (2) shall apply to a distribution paid after December 31, 1969, only to the extent that it does not exceed the sum of— “(A) the benefits accrued by the employee on behalf of whom it is paid during plan years beginning before January 1, 1970, and “(B) the portion of the benefits accrued by such employee during plan years beginning after December 31, 1969, which the distributee establishes does not consist of the employee’s allocable share of employer contributions to the trust by which such distribution is paid. The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph.” (2) Employee annuities.—Section 403(a)(2) (relating to capital gains treatment for certain distributions under a qualified annuity plan) is amended by adding at the end thereof the following new subparagraph: “(C) Limitation on capital gains treatment.—Subparagraph (A) shall apply to a payment paid after December 31, 1969, only to the extent it does not exceed the sum of— “(i) the benefits accrued by the employee on behalf of whom it is paid during plan years beginning before January 1, 1970, and “(ii) the portion of the benefits accrued by such employee during plan years beginning after December 31, 1969, which the payee establishes does not consist of the employee’s allocable share of employer contributions under the plan under which the annuity contract is purchased. The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph.” (b) Limitation on Tax.—Section 72(n) (relating to treatment of certain distributions with respect to contributions by self-employed individuals) is amended— (1) by striking out so much thereof as precedes paragraph (2) and inserting in lieu thereof the following: “(n) Treatment of Total Distributions.— “(1) Application of subsection.— “(A) General rule.—This subsection shall apply to amounts— “(i) distributed to a distributee, in the case of an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), or “(ii) paid to a payee, in the case of an annuity plan described in section 403(a), if the total distributions or amounts payable to the distributee or payee with respect to an employee (including an individual who is an employee within the meaning of section 401(c)(1)) are paid to the distributee or payee within one taxable year of the distributee or payee, but only to the extent that section 402(a)(2) or 403(a)(2)(A) does not apply to such amounts. “(B) Distributions to which applicable.—This subsection shall apply only to distributions or amounts paid— “(i) on account of the employee’s death, “(ii) with respect to an individual who is an employee without regard to section 401(c)(1), on account of his separation from the service, 83 Stat. 645 “(iii) with respect to an employee within the meaning of section 401(c)(1), after he has attained the age of 59½ years, or “(iv) with respect to an employee within the meaning of section 401(c)(1), after he has become disabled (within the meaning of subsection (m)(7)). “(C) Minimum period of service.—This subsection shall apply to amounts distributed or paid to an employee from or under a plan only if he has been a participant in the plan for 5 or more taxable years prior to the taxable year in which such amounts are distributed or paid. “(D) Amounts subject to penalty.—This subsection shall not apply to amounts described in clauses (ii) and (iii) of subparagraph (A) of subsection (m)(5) (but, in the case of amounts described in clause (ii) of such subparagraph, only to the extent that subsection (m)(5) applies to such amounts).”; and (2) by adding at the end thereof the following new paragraph: “(4) Special rule for employees without regard to section 401(c)(1).—In the case of amounts to which this subsection applies which are distributed or paid with respect to an individual who is an employee without regard to section 401(c)(1), paragraph (2) shall be applied with the following modifications: “(A) ‘7 times’ shall be substituted for ‘5 times’, and ‘14 2/7 percent’ shall be substituted for ‘20 percent’. “(B) Any amount which is received during the taxable year by the employee as compensation (other than as deferred compensation within the meaning of section 404) for personal services performed for the employer in respect of whom the amounts distributed or paid are received shall not be taken, into account. “(C) No portion of the total distributions or amounts payable (of which the amounts distributed or paid are a part) to which section 402(a)(2) or 403(a)(2)(A) applies shall be taken into account. Subparagraph (B) shall not apply if the employee has not attained the age of 59½ years, unless he has died or become disabled (within the meaning of subsection (m)(7)).” (c) Technical and Conforming Amendments.— (1) Section 405(e) (relating to capital gains treatment not to apply to bonds distributed by trusts) is amended— (A) by striking out “Capital Gains Treatment” in the heading and inserting in lieu thereof “Capital Gains Treatment and Limitation of Tax”; (B) by striking out “Section 402(a)(2)” and inserting in lieu thereof “Section 72(n) and section 402(a)(2)”; and (C) by striking out “section” and inserting in lieu thereof “sections”. (2) Section 400(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of capital gain provisions) is amended— (A) by striking out “Provisions.” in the heading and inserting in lieu thereof “Provisions and Limitation of Tax.”; and 83 Stat. 646 (B) by striking out “section 402(a)(2)” and inserting in lieu thereof “section 72(n), section 402(a)(2),”. (3) Section 407(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of capital gain provisions) is amended— (A) by striking out “Provisions.” in the heading and inserting in lieu thereof “Provisions and Limitation of Tax.”; and (B) by striking out “section 402(a)(2)” and inserting in lieu thereof “section 72(n), section 402(a)(2),”. (4) Section 1304(b)(2) (relating to certain provisions inapplicable) is amended to read as follows: “(2) section 72(n)(2) (relating to limitation of tax in case of total distribution),”, (d) Effective Date.—The amendments made by this section shall apply to taxable years ending after December 31, 1969.