REQUIREMENT THAT QUALIFIED PLANS INCLUDE OPTIONAL TRUSTEE-TO-TRUSTEE TRANSFERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS.

SEC. 522. REQUIREMENT THAT QUALIFIED PLANS INCLUDE OPTIONAL TRUSTEE-TO-TRUSTEE TRANSFERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS. (a) Optional Transfers.— (1) Qualified plans.—Subsection (a) of section 401 (relating to requirements for qualification) is amended by inserting after paragraph (30) the following new paragraph: “(31) Optional direct transfer of eligible rollover distributions.— “(A) In general.—A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if the distributee of any eligible rollover distribution— “(i) elects to have such distribution paid directly to an eligible retirement plan, and “(ii) specifies the eligible retirement plan to which such distribution is to be paid (in such form and at such time as the plan administrator may prescribe), such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified. “(B) Limitation.—Subparagraph (A) shall apply only to the extent that the eligible rollover distribution would be includible in gross income if not transferred as provided 106 STAT. 314in subparagraph (A) (determined without regard to sections 402(c) and 403(a)(4)). “(C) Eligible rollover distribution.—For purposes of this paragraph, the term ‘eligible rollover distribution’ has the meaning given such term by section 402(f)(2)(A). “(D) Eligible retirement plan.—For purposes of this paragraph, the term ‘eligible retirement plan’ has the meaning given such term by section 402(c)(8)(B), except that a Qualified trust shall be considered an eligible retirement plan only if it is a defined contribution plan, the terms of which permit the acceptance of rollover distributions.” (2) Employee’s annuities.—Paragraph (2) of section 404(a) (relating to employee’s annuities) is amended by striking “and (27)” and inserting “(27), and (31)”. (3) Annuities purchased by charities and public schools.—Paragraph (10) of section 403(b) (relating to distribution requirements) is amended by striking “section 401(a)(9)” and inserting “sections 401(a)(9) and 401(a)(31)”. (b) Withholding on Eligible Rollover Distributions Which Are Not Rolled Over.— (1) In general.—Section 3405 (relating to special rules for pensions, annuities, and certain other deferred income) is amended by redesignating subsections (c), (d), and (e) as subsections (d), (e), and (f) and by inserting after subsection (b) the following new subsection: “(c) Eligible Rollover Distributions.— “(1) In general.— In the case of any designated distribution which is an eligible rollover distribution— “(A) subsections (a) and (b) shall not apply, and “(B) the payor of such distribution shall withhold from such distribution an amount equal to 20 percent of such distribution. “(2) Exception.—Paragraph (1)(B) shall not apply to any distribution if the distributee elects under section 401(a)(31)(A) to have such distribution paid directly to an eligible retirement plan. “(3) Eligible rollover distribution.—For purposes of this subsection, the term ‘eligible rollover distribution’ has the meaning given such term by section 402(f)(2)(A) (or in the case of an annuity contract under section 403(b), a distribution from such contract described in section 402(f)(2)(A)).” (2) Conforming amendments.— (A) Section 3405(a)(1) is amended by striking “subsection (d)(2)” and inserting “subsection (e)(2)”. (B) Section 3405(b)(1) is amended by striking “subsection (d)(3)” and inserting “subsection (e)(3)”. (C) Section 3405(d)(l) (as redesignated by paragraph (1)) is amended by striking “subsection (d)(1)” and inserting “subsection (e)(1)”. (D) Sections 3402(o)(6) and 6047(d)(1) are each amended by striking “section 3405(d)(1)” and inserting “section 3405(e)(1)”. (E) Section 6047(d)(1)(A) is amended by striking “section 3405(d)(1)” and inserting “section 3405(d)(3)”. (F) Section 6652(h) is amended by striking “section 3405(d)(10)(B)” and inserting “section 3405(e)(10)(B)”. 106 STAT. 315 (c) Exclusion From Income.— (1) Qualified trusts.—Subsection (e) of section 402 (relating to taxability of beneficiary of employees’ trust), as amended by section 521, is amended by adding at the end the following new paragraph: “(6) Direct trustee-to-trustee transfers.—Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of such transfer.” (2) Employee annuities.—Subsection (a) of section 403 is amended by adding at the end the following new paragraph: “(5) Direct trustee-to-trustee transfer.—Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of such transfer.” (3) Annuity contracts purchased by charities and public schools.—Section 403(b)(10) is amended by adding at the end the following new sentence: “Any amount transferred in an direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of the transfer.” (d) Effective Dates.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to distributions after December 31, 1992. (2) Transition rule for certain annuity contracts.—If, as of July 1, 1992, a State law prohibits a direct trustee-to-trustee transfer from an annuity contract described in section 403(b) of the Internal Revenue Code of 1986 which was purchased for an employee by an employer which is a State or a political subdivision thereof (or an agency or instrumentality of any 1 or more of either), the amendments made by this section shall not apply to distributions before the earlier of— (A) 90 days after the first day after July 1, 1992, on which such transfer is allowed under State law, or (B) January 1, 1994.