NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS.

SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS. (a) In General.—Subpart A of part IV of subchapter A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting after section 25A the following new section: “SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN INDIVIDUALS. “(a) Allowance of Credit.—In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the applicable percentage of so much of the qualified retirement savings contributions of the eligible individual for the taxable year as do not exceed $2,000. “(b) Applicable Percentage.—For purposes of this section, the applicable percentage is the percentage determined in accordance with the following table: Adjusted Gross Income Applicable percentage Joint return Head of a household All other cases Over Not over Over Not over Over Not over $30,000 $22,500 $15,000 50 30,000 32,500 22,500 24,375 15,000 16,250 20 32,500 50,000 24,375 37,500 16,250 25,000 10 50,000 37,500 25,000 0 “(c) Eligible Individual.—For purposes of this section— “(1) In general.—The term ‘eligible individual’ means any individual if such individual has attained the age of 18 as of the close of the taxable year.115 STAT. 107 “(2) Dependents and full-time students not eligible.—The term ‘eligible individual’ shall not include— “(A) any individual with respect to whom a deduction under section 151 is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins, and “(B) any individual who is a student (as defined in section 151(c)(4)). “(d) Qualified Retirement Savings Contributions.—For purposes of this section— “(1) In general.—The term ‘qualified retirement savings contributions’ means, with respect to any taxable year, the sum of— “(A) the amount of the qualified retirement contributions (as defined in section 219(e)) made by the eligible individual, “(B) the amount of— “(i) any elective deferrals (as defined in section 402(g)(3)) of such individual, and “(ii) any elective deferral of compensation by such individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), and “(C) the amount of voluntary employee contributions by such individual to any qualified retirement plan (as defined in section 4974(c)). “(2) Reduction for certain distributions.— “(A) In general.—The qualified retirement savings contributions determined under paragraph (1) shall be reduced (but not below zero) by the sum of— “(i) any distribution from a qualified retirement plan (as defined in section 4974(c)), or from an eligible deferred compensation plan (as defined in section 457(b)), received by the individual during the testing period which is includible in gross income, and “(ii) any distribution from a Roth IRA or a Roth account received by the individual during the testing period which is not a qualified rollover contribution (as defined in section 408A(e)) to a Roth IRA or a rollover under section 402(c)(8)(B) to a Roth account. “(B) Testing period.—For purposes of subparagraph (A), the testing period, with respect to a taxable year, is the period which includes— “(i) such taxable year, “(ii) the 2 preceding taxable years, and “(iii) the period after such taxable year and before the due date (including extensions) for filing the return of tax for such taxable year. “(C) Excepted distributions.—There shall not be taken into account under subparagraph (A)— “(i) any distribution referred to in section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and “(ii) any distribution to which section 408A(d)(3) applies. “(D) Treatment of distributions received by spouse of individual.—For purposes of determining distributions received by an individual under subparagraph 115 STAT. 108(A) for any taxable year, any distribution received by the spouse of such individual shall be treated as received by such individual if such individual and spouse file a joint return for such taxable year and for the taxable year during which the spouse receives the distribution. “(e) Adjusted Gross Income.—For purposes of this section, adjusted gross income shall be determined without regard to sections 911, 931, and 933. “(f) Investment in the Contract.—Notwithstanding any other provision of law, a qualified retirement savings contribution shall not fail to be included in determining the investment in the contract for purposes of section 72 by reason of the credit under this section. “(g) Termination.—This section shall not apply to taxable years beginning after December 31, 2006.”. (b) Credit Allowed Against Regular Tax and Alternative Minimum Tax.— (1) In general.—Section 25B, as added by subsection (a), is amended by inserting after subsection (f) the following new subsection: “(g) Limitation Based on Amount of Tax.—The credit allowed under subsection (a) for the taxable year shall not exceed the excess of— “(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over “(2) the sum of the credits allowable under this subpart (other than this section and section 23) and section 27 for the taxable year.”. (2) Conforming amendments.— (A) Section 24(b)(3)(B), as amended by sections 201(b) and 203(d), is amended by striking “section 23” and inserting “sections 23 and 25B”. (B) Section 25(e)(1)(C), as amended by section 201(b), is amended by inserting “25B,” after “24,”. (C) Section 26(a)(1), as amended by sections 201(b) and 203, is amended by striking “and 24” and inserting “, 24, and 25B”. (D) Section 904(h), as amended by sections 201(b) and 203, is amended by striking “and 24” and inserting “, 24, and 25B”. (E) Section 1400C(d), as amended by sections 201(b) and 203, is amended by striking “and 24” and inserting “, 24, and 25B”. (c) Conforming Amendment.—The table of sections for subpart A of part IV of subchapter A of chapter 1, as amended by section 432, is amended by inserting after the item relating to section 25A the following new item: “Sec. 25B. Elective deferrals and IRA contributions by certain individuals.”. (d) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.