DEDUCTION FOR RETIREMENT SAVINGS.

SEC. 2002. DEDUCTION FOR RETIREMENT SAVINGS. (a) Allowance of Deduction.— (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 88 Stat. 959 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 his rights in such contract are nonforfeitable).” “(3) Contributions after age 70½—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 70½ before the close of such taxable year. “(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.—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 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 nonforfeitable. “(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund. 88 Stat. 960 “(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 70½, 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 individual 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 70½, 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-88 Stat. 961ficiary 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 70½; 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. “(c) Accounts Established by Employers and Certain Associations 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 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 purposes of section 72 the investment 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 88 Stat. 962 for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or “(ii) the entire amount received (including money and any other property) represents the entire amount in the account or the entire value of the annuity and no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution from an employees’ trust described in section 401(a) which is exempt from tax under section 501(a) (other than a trust forming part of a plan under which the individual was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan), or an annuity plan described in section 403(a) (other than a plan under which the individual was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan) and any earnings on such sums and the entire amount thereof is paid into another such trust (for the benefit of such individual) or annuity plan not later than the 60th day on which he receives the payment or distribution. “(B) Limitation.—This paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 3-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account, individual retirement annuity, or a retirement bond which was not includible in his gross income because of the application of this paragraph. “(4) Excess contributions returned before due date of return.—Paragraph (1) does not apply to the distribution of any contribution paid during a taxable year to an individual retirement account or for an individual retirement annuity to the extent that such contribution exceeds the amount allowable as a deduction under section 219 if— “(A) such distribution is received on or before the day prescribed by law (including extensions of time) for filing such individual’s return for such taxable year, “(B) no deduction is allowed under section 219 with respect to such excess contribution, and “(C) such distribution is accompanied by the amount of net income attributable to such excess contribution. Any net income described in subparagraph (C) shall be included in the gross income of the individual for the taxable year in which received. “(5) Transfer of account incident to divorce.—The transfer of an individual’s interest in an individual retirement account, individual retirement annuity, or retirement bond to his former spouse under a divorce decree or under a written instrument incident to such divorce is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an individual retirement account of such spouse, and not of such individual. Thereafter such account, annuity, or bond for purposes of this subtitle is to be treated as maintained for the benefit of such spouse. 88 Stat. 963 “(e) Tax Treatment of Accounts and Annuities.— “(1) Exemption from tax.—Any individual retirement account is exempt from taxation under this subtitle unless such account has ceased to be an individual retirement account by reason of paragraph (2) or (3). Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations). “(2) Loss of exemption of account where employee engages in prohibited transaction.— “(A) In general.—If, during any taxable year of the individual for whose benefit any individual retirement account is established, that individual or his beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such account ceases to be an individual retirement account as of the first day of such taxable year. For purposes of this paragraph— “(i) the individual for whose benefit any account was established is treated as the creator of such account, and “(ii) the separate account for any individual within an individual retirement account maintained by an employer or association of employees is treated as a separate individual retirement account. “(B) Account treated as distributing all its assets.— In any case in which any account ceases to be an individual retirement account by reason of subparagraph (A) as of the first day of any taxable year, paragraph (1) of subsection (d) applies as if there were a distribution on such first day in an amount equal to the fair market value (on such first day) of all assets in the account (on such first day). “(3) Effect of borrowing on annuity contract.—If during any taxable year the owner of an individual retirement annuity borrows any money under or by use of such contract, the contract ceases to be an individual retirement annuity as of the first day of such taxable year. Such owner shall include in gross income for such year an amount equal to the fair market value of such contract as of such first day. “(4) Effect of pledging account as security.—If, during any taxable year of the individual for whose benefit an individual retirement account is established, that individual uses the account or any portion thereof as security for a loan, the portion so used is treated as distributed to that individual. “(5) Purchase of endowment contract by individual retirement account.—If the assets of an individual retirement account or any part of such assets are used to purchase an endowment contract for the benefit of the individual for whose benefit the account is established— “(A) to the extent that the amount of the assets involved in the purchase are not attributable to the purchase of life insurance, the purchase is treated as a rollover contribution described in subsection (d)(3), and “(B) to the extent that the amount of the assets involved in the purchase are attributable to the purchase of life, health, accident, or other insurance, such amounts are treated as distributed to that individual (but the provisions of subsection (f) do not apply). “(6) Commingling individual retirement account amounts in certain common trust funds and common investment funds.—Any common trust fund or common investment fund of 88 Stat. 964 individual retirement account assets which is exempt from taxation under this subtitle does not cease to be exempt on account of the participation or inclusion of assets of a trust exempt from taxation under section 501(a) which is described in section 401(a). “(f) Additional Tax on Certain Amounts Included in Gross Income Before Age 59½.— “(1) Early distributions from an individual retirement account, etc.—If a distribution from an individual retirement account or under an individual retirement annuity to the individual for whose benefit such account or annuity was established is made before such individual attains age 59½, his tax under this chapter for the taxable year in which such distribution is received shall be increased by an amount equal to 10 percent of the amount of the distribution which is includible in his gross income for such taxable year. “(2) Disqualification cases.—If an amount is includible in gross income for a taxable year under subsection (e) and the taxpayer has not attained age 59½ before the beginning of such taxable year, his tax under this chapter for such taxable year shall be increased by an amount equal to 10 percent of such amount so required to be included in his gross income. “(3) Disability cases.—Paragraphs (1) and (2) do not apply if the amount paid or distributed, or the disqualification of the account or annuity under subsection (e), is attributable to the taxpayer becoming disabled within the meaning of section 72(m)(7). “(g) Community Property Laws.—This section shall be applied without regard to any community property laws. “(h) Custodial Accounts.—For purposes of this section, a custodial account shall be treated as a trust if the assets of such account are held by a bank (as defined in section 401(d)(1)) or another person who demonstrates, to the satisfaction of the Secretary or his delegate, that the manner in which he will administer the account will be consistent with the requirements of this section, and if the custodial account would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection (a). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof. “(i) Reports.—The trustee of an individual retirement account and the issuer of an endowment contract described in subsection (b) or an individual retirement annuity shall make such reports regarding such account, contract, or annuity to the Secretary or his delegate and to the individuals for whom the account, contract, or annuity is, or is to be, maintained with respect to contributions, distributions, and such other matters as the Secretary or his delegate may require under regulations. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by those regulations. “(j) Cross References.— “(1) For tax on excess contributions in individual retirement accounts or annuities, see section 4973. “(2) For tax on certain accumulations in individual retirement accounts or annuities, see section 4974.” (c) Retirement Bonds.—Subpart A of part I of subchapter D of chapter I (relating to retirement plans) is amended by inserting after section 408 the following new section: “SEC. 409. RETIREMENT BONDS. “(a) Retirement Bond.—For purposes of this section and section 219(a), the term ‘retirement bond’ means a bond issued under the 88 Stat. 965 Second Liberty Bond Act, as amended, which by its terms, or by regulations prescribed by the Secretary or his delegate under such Act— “(1) provides for payment of interest, or investment yield, only on redemption; “(2) provides that no interest, or investment yield, is payable if the bond is redeemed within 12 months after the date of its issuance; “(3) provides that it ceases to bear interest, or provide investment yield on the earlier of— “(A) the date on which the individual in whose name it is purchased (hereinafter in this section referred to as the ‘registered owner’) attains age 70½; or “(B) 5 years after the date on which the registered owner dies, but not later than the date on which he would have attained the age 70½ had he lived; “(4) provides that, except in the case of a rollover contribution described in subsection (b)(3)(C) or in section 402(a)(5), 403(a)(4), or 408(d)(3) the registered owner may not contribute for the purchase of such bonds in excess of $1,500 in any taxable year; and “(5) is not transferable. “(b) Income Tax Treatment of Bonds.— “(1) In general.—Except as otherwise provided in this subsection, on the redemption of a retirement bond the entire proceeds shall be included in the gross income of the taxpayer entitled to the proceeds on redemption. If the registered owner has not tendered it for redemption before the close of the taxable year in which he attains age 70½, such individual shall include in his gross income for such taxable year the amount of proceeds he would have received if the bond had been redeemed at age 70½. The provisions of section 72 (relating to annuities) and section 1232 (relating to bonds and other evidences of indebtedness) shall not apply to a retirement bond. “(2) Basis.—The basis of a retirement bond is zero. “(3) Exceptions.— “(A) Redemption within 12 months.—If a retirement bond is redeemed within 12 months after the date of its issuance, the proceeds are excluded from gross income if no deduction is allowed under section 219 on account of the purchase of such bond. “(B) Redemption after age 70½.—If a retirement bond is redeemed after the close of the taxable year in which the registered owner attains age 70½, the proceeds from the redemption of the bond are excluded from the gross income of the registered owner to the extent that such proceeds were includible in his gross income for such taxable year. “(C) Rollover into an individual retirement account or annuity or a qualified plan.—If a retirement bond is redeemed at any time before the close of the taxable year in which the registered owner attains age 70½, and the registered owner transfers the entire amount of the proceeds from the redemption of the bond to an individual retirement account described in section 408(a) or to an individual retirement annuity described in section 408(b) (other than an endowment contract) which is maintained for the benefit of the registered owner of the bond, or to an employees’ trust described in section 401(a) which is exempt from tax under asection 501(a), or an annuity plan described in section 403(a) 88 Stat. 966 for the benefit of the registered owner, on or before the 60th day after the day on which he received the proceeds of such redemption, then the proceeds shall be excluded from gross income and the transfer shall be treated as a rollover contribution described in section 403(d)(3). This subparagraph does not apply in the case of a transfer to such an employees’ trust or such an annuity plan unless no part of the value of such proceeds is attributable to any source other than a rollover contribution from such an employees’ trust or annuity plan (other than an annuity plan or a trust forming part of a plan under which the individual was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan). “(c) Additional Tax on Certain Redemptions Before Age 59½.— “(1) Early redemption of bond.—If a retirement bond is redeemed by the registered owner before he attains age 59½, his tax under this chapter for the taxable year in which the bond is redeemed shall be increased by an amount equal to 10 percent of the amount of the proceeds of the redemption includible in his gross income for the taxable year. “(2) Disability cases.—Paragraph (1) does not apply for any taxable year during which the retirement bond is redeemed if, for that taxable year, the registered owner is disabled within the meaning of section 72(m)(7). “(3) Redemption within one year.—Paragraph (1) does not apply if the registered owner tenders the bond for redemption within 12 months after the date of its issuance.”. (d) Excise Tax on Excess Contributions.—Chapter 43 (relating to qualified pension, etc., plans) is amended by inserting after section 4972 the following new section: “SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO INDIVIDUAL RETIREMENT ACCOUNTS, CERTAIN SECTION 493(b) CONTRACTS, CERTAIN INDIVIDUAL RETIREMENT ANNUITIES, AND CERTAIN RETIREMENT BONDS. “(a) Tax Imposed.—In the case of— “(1) an individual retirement account (within the meaning of section 408(a)), “(2) an individual retirement annuity (within the meaning of section 408(b)), a custodial account treated as an annuity contract under section 403(b)(7)(A) (relating to custodial accounts for regulated investment company stock), or “(3) a retirement bond (within the meaning of section 409), established for the benefit of any individual, there is imposed for each taxable year a tax in an amount equal to 6 percent of the amount of the excess contributions to such individual’s accounts, annuities, or bonds (determined as of the close of the taxable year). The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account, annuity, or bond (determined as of the close of the taxable year). In the case of an endowment contract described in section 408(b), the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract. The tax imposed by this subsection shall be paid by such individual. “(b) Excess Contributions.—For purposes of this section, in the case of individual retirement accounts, individual retirement annuities, or bonds, the term ‘excess contributions’ means the sum of— “(1) the excess (if any) of— 88 Stat. 967 “(A) the amount contributed for the taxable year to the accounts or for the annuities or bonds (other than a rollover contribution described in section 402(a)(5), 403(a)(4), 408(d)(3)), or 409(b)(3)(C), over “(B) the amount allowable as a deduction under section 219 for such contributions, and “(2) the amount determined under this subsection for the preceding taxable year, reduced by the excess (if any) of the maximum amount allowable as a deduction under section 219 for the taxable year over the amount contributed to the accounts or for the annuities or bonds for the taxable year and reduced by the sum of the distributions out of the account (for all prior taxable years) which were included in the gross income of the payee under section 408(d)(1). for purposes of this paragraph, any contribution which is distributed out of the individual retirement account, individual retirement annuity, or bond in a distribution to which section 408(d)(4) applies shall be treated as an amount not contributed.” “(c) Section 403(b) Contracts.—For purposes of this section, in the case of a custodial account referred to in subsection (a)(3), the term ‘excess contributions’ means the sum of— “(1) the excess (if any) of the amount contributed for the taxable year to such account, over the lesser of the amount excludable from gross income under section 403(b) or the amount permitted to be contributed under the limitations contained in section 415 (or under whichever such section is applicable, if only one is applicable), and “(2) the amount determined under this subsection for the preceding taxable year, reduced by— “(A) the excess (if any) of the lesser of (i) the amount excludable from gross income under section 403(b) or (ii) the amount permitted to be contributed under the limitations contained in section 415 over the amount contributed to the account for the taxable year (or under whichever such section is applicable, if only one is applicable), and “(B) the sum of the distributions out of the account (for all prior taxable years) which are included in gross income under section 72(e).” (e) Excise Tax on Excessive Accumulations.—Chapter 43 is amended by inserting after section 4973 the following new section: “SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN INDIVIDUAL RETIREMENT ACCOUNTS OR ANNUITIES. “(a) Imposition of Tax.—If, in the case of an individual retirement account or individual retirement annuity, the amount distributed during the taxable year of the payee is less than the minimum amount required to be distributed under section 408(a)(6) or (7), or 408(b)(3) or (4) during such year, there is imposed a tax equal to 50 percent of the amount by which the minimum amount required to be distributed during such year exceeds the amount actually distributed during the year. The tax imposed by this section shall be paid by such payee. “(b) Regulations.—For purposes of this section, the minimum amount required to be distributed during a taxable year under section 408(a)(6) or (7) or 408(b)(3) or (4) shall be determined under regulations prescribed by the Secretary or his delegate.”. (f) Penalty for Failure To Provide Reports on Individual Retirement Accounts.—Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section:88 Stat. 968 “SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL RETIREMENT ACCOUNTS OR ANNUITIES. “(a) The person required by section 408(i) to file a report regarding an individual retirement account or individual retirement annuity at the time and in the manner required by section 408(i) shall pay a penalty of $10 for each failure unless it is shown that such failure is due to reasonable cause. “(b) Deficiency Procedures Not To Apply.—Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) does not apply to the assessment or collection of any penalty imposed by subsection (a).”. (g) Conforming Amendments.— (1) Section 37(c)(1) (defining retirement income) is amended— (A) by striking out “and” at the end of subparagraph (D), (B) by adding at the end of subparagraph (E) the following: “retirement bonds described in section 409, and”, and (C) by adding at the end thereof the following new paragraph: “(F) an individual retirement account described in section 408(a) or an individual retirement annuity described in section 408(b), or”. (2) The second sentence of section 46(a)(3) and the second sentence of section 50A(a)(3), as each is amended by sections 2001(g)(2)(B) and 2005(c)(4) of this Act, are each amended by inserting after “owner-employees,” the following: “section 408(e) (relating to additional tax on income from certain retirement accounts),”. (3) The third sentence of section 901(a), as amended by section 2005(c)(5) of this Act, is amended by inserting “against the tax imposed for the taxable year by section 408(f) (relating to additional tax on income from certain retirement accounts),” before “against the tax imposed by section 531”. (4) Subparagraph (A) of section 56(a)(2) and paragraph (1) of section 56(c) are each amended by striking out “531” and inserting in lieu thereof “408(f), 531,”. (5) Section 402(a) (relating to taxability of beneficiary of exempt trust), as amended by section 2005(c)(2) of this Act, is amended by inserting after paragraph (5) the following new paragraph: “(5) Rollover amounts.—In the case of an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), if— “(A) the balance to the credit of an employee is paid to him on one or more distributions which constitute a lump sum distribution within the meaning of subsection (e)(4)(A) (determined without reference to subsection (e)(4)(B)), “(B)(i) the employee transfers all the property he receives in such distribution to an individual retirement account described in section 408(a), an individual retirement annuity described in section 408(b) (other than an endowment contract), or a retirement bond described in section 409, on or before the 60th day after the day on which he received such property, to the extent the fair market value of such property exceeds the amount referred to in subsection (e)(4)(D)(i), or “(ii) the employee transfers all the property he receives in such distribution to an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), 88 Stat. 969 or to an annuity plan described in section 403(a) on or before the 60th day after the day on which he received such property, to the extent the fair market value of such property exceeds the amount referred to in subsection (e)(4)(D)(i), and “(C) the amount so transferred consists of the property (other than money) distributed, to the extent that the fair market value of such property does not exceed the amount required to be transferred pursuant to subparagraph (B), then such distributions are not includible in gross income for the year in which paid. For purposes of this title, a transfer described in subparagraph (B)(i) shall be treated as a rollover contribution as described in section 408(d)(3). Subparagraph (B)(ii) does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of the lump sum distribution described in subparagraph (A) is attributable to a trust forming part of a plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.” (6) Section 403(a) (relating to taxation of employee annuities) is amended by adding after paragraph (3) the following new paragraph: “(4) Rollover amounts.—In the case of an employee annuity described in 403(a), if— “(A) the balance to the credit of an employee is paid to him in one or more distributions which constitute a lump sum distribution within the meaning of section 402(e)(4)(A) determined without reference to section 402(e)(4)(B), “(B)(i) the employee transfers all the property he receives in such distribution to an individual account described in section 408(a), an individual retirement annuity described in section 408(b) (other than an endowment contract), or a retirement bond described in section 409, on or before the 60th day after the day on which he received such property to the extent the fair market value of such property exceeds the amount referred to in section 402(e)(4)(D)(i), or “(ii) the employee transfers all the property he receives in such distribution to an employees’ trust described in section 401(a) which is exempt from tax under section 501(a), or to an annuity plan described in subsection (a) on or before the 60th day after the day on which he received such property to the extent the fair market value of such property exceeds the amount referred to in section 402(e)(4)(D)(i), and “(C) the amount so transferred consists of the property distributed to the extent that the fair market value of such property does not exceed the amount required to be transferred pursuant to subparagraph (B), then such distribution is not includible in gross income for the year in which paid. For purposes of this title, a transfer described in subparagraph (B)(i) shall be treated as a rollover contribution described in section 408(d)(3). Subparagraph (B)(ii) does not apply in the case of a transfer to an employees’ trust, or annuity plan if any part of the lump sum distribution described in subparagraph (A) is attributable to an annuity plan under which the employee was an employee within the meaning of section 401(c)(1) at the time contributions were made on his behalf under the plan.”. 88 Stat. 970 (7) Section 3401(a)(12) (relating to exemption from collection of income tax at source on certain wages) is amended by adding at the end thereof the following new subparagraph: “(D) for a payment described in section 219(a) if, at the time of such payment, it is reasonable to believe that the employee will be entitled to a deduction under such section for payment; or”. (8) Section 6047 (relating to information relating to certain trusts and annuity and bond purchase plans) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: “(d) Other Programs.—To the extent provided by regulations prescribed by the Secretary or his delegate, the provisions of this section apply with respect to any payment described in section 219(a) and to transactions of any trust described in section 408(a) or under an individual retirement annuity described in section 408(b).”. (9) Section 805(d)(1) (relating to definition of pension plan reserves) is amended by striking out “or” at the end of subparagraph (C), by striking out “foregoing.” at the end of subparagraph (D) and inserting in lieu thereof “foregoing; or”, and by adding at the end thereof the following new subparagraph: “(E) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b).” (10) Section 72 (relating to annuities) is amended— (A) by inserting after “501(a)” in subsection (m)(4)(A) “, an individual retirement amount described in section 408(a), an individual retirement annuity described in section 408(b)”. (B) by striking out at the end of subsection (m)(6) “401(c)(3)” and inserting in lieu thereof “401(c)(3) and includes an individual for whose benefit an individual retirement account or annuity described in section 408 (a) or (b) is maintained”. (11) Section 801(g)(7) (relating to basis of assets held for qualified pension plan contracts) is amended by striking out “or (D)” and inserting in lieu thereof “(D), or (E)”. (h) Clerical Amendments.— (1) The table of sections for part VII of subchapter B of chapter 1 is amended by striking out the item relating to section 219 and inserting in lieu thereof the following: “Sec. 219. Retirement savings. “Sec. 220. Cross references.”. (2) The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by adding at the end thereof the following: “Sec. 408. Individual retirement accounts. “Sec. 409. Retirement bonds.”. (3) The table of sections for chapter 43 is amended by inserting after the item relating to section 4972 the following new items: “Sec. 4973. Tax on excess contributions to individual retirement accounts, certain 403(b) contracts, certain individual retirement annuities, and certain retirement bonds. “Sec. 4974. Tax on certain accumulations in individual retirement accounts. “Sec. 4975. Tax on prohibited transactions.”, 88 Stat. 971 (4) The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new item: “Sec. 6693. Failure to provide reports on individual retirement accounts or annuities.”. (i) Effective Dates.— (1) The amendments made by subsections (a), (b), and (c) apply to taxable years beginning after December 31, 1974. (2) The amendments made by subsections (d) through (h) except subsection (g)(5) and (6) shall take effect on January 1, 1975. (3) The amendments made by subsection (g)(5) and (6) shall apply on and after the date of enactment of this Act with respect to contributions to an employees’ trust described in section 401(a) of the Internal Revenue Code of 1954 which is exempt from tax under section 501(a) of such Code or an annuity plan described in section 403(a) of such Code.