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TITLE
VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS
Subtitle A--Individual
Retirement Accounts
SEC.
601. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) Increase
in Contribution Limit.--
(1) In general.--Paragraph
(1)(A) of section <<NOTE: 26 USC
219.>>
219(b) (relating to maximum amount of deduction) is
amended by
striking ``$2,000'' and inserting ``the deductible
amount''.
(2) Deductible
amount.--Section 219(b) is amended by adding
at the end
the following new paragraph:
``(5) Deductible
amount.--For purposes of paragraph (1)(A)--
``(A) In general.--The
deductible amount shall be
determined
in accordance with the following table:
| ``For taxable
years beginning in: |
The deductible
amount is: |
| 2002 through
2004 |
$3,000
|
| 2005 through
2007 |
$4,000
|
| 2008 and
thereafter |
$5,000.
|
``(B) Catch-up
contributions for individuals 50 or
older.--
``(i) In general.--In
the case of an
individual
who has attained the age of 50 before
the close of
the taxable year, the deductible
amount for
such taxable year shall be increased by
the applicable
amount.
``(ii) Applicable
amount.--For purposes of
clause (i),
the applicable amount shall be the
amount determined
in accordance with the following
table:
``For taxable
years The applicable
beginning in:
amount is:
2002 through
2005........................... $500
2006 and thereafter.........................
$1,000.
``(C) Cost-of-living
adjustment.--
``(i) In general.--In
the case of any taxable
year beginning
in a calendar year after 2008, the
$5,000 amount
under subparagraph (A) shall be
increased by
an amount equal to--
``(I) such
dollar amount, multiplied
by
``(II) the
cost-of-living adjustment
determined
under section 1(f )(3) for
the calendar
year in which the taxable
year begins,
determined by substituting
`calendar year
2007' for `calendar year
1992' in subparagraph
(B) thereof.
``(ii) Rounding
rules.--If any amount after
adjustment
under clause (i) is not a multiple of
$500, such
[[Page 115 STAT.
95]]
amount shall
be rounded to the next lower multiple
of $500.''.
(b) Conforming
Amendments.--
(1) Section
408(a)(1) <<NOTE: 26 USC 408.>> is amended by
striking ``in
excess of $2,000 on behalf of any individual'' and
inserting ``on
behalf of any individual in excess of the amount
in effect for
such taxable year under section 219(b)(1)(A)''.
(2) Section
408(b)(2)(B) is amended by striking ``$2,000''
and inserting
``the dollar amount in effect under section
219(b)(1)(A)''.
(3) Section
408(b) is amended by striking ``$2,000'' in the
matter following
paragraph (4) and inserting ``the dollar amount
in effect under
section 219(b)(1)(A)''.
(4) Section
408( j) is amended by striking ``$2,000''.
(5) Section
408(p)(8) is amended by striking ``$2,000'' and
inserting ``the
dollar amount in effect under section
219(b)(1)(A)''.
(c) <<NOTE:
Applicability. 26 USC 219 note.>> Effective Date.--The
amendments made
by this section shall apply to taxable years beginning
after December
31, 2001.
SEC.
602. DEEMED IRAs UNDER EMPLOYER PLANS.
(a) In General.--Section
408 (relating to individual retirement
accounts) is
amended by redesignating subsection (q) as subsection (r)
and by inserting
after subsection (p) the following new subsection:
``(q) Deemed
IRAs Under Qualified Employer Plans.--
``(1) General
rule.--If--
``(A) a qualified
employer plan elects to allow
employees to
make voluntary employee contributions to a
separate account
or annuity established under the plan,
and
``(B) under
the terms of the qualified employer
plan, such
account or annuity meets the applicable
requirements
of this section or section 408A for an
individual
retirement account or annuity,
then such account
or annuity shall be treated for purposes of
this title
in the same manner as an individual retirement plan
and not as
a qualified employer plan (and contributions to such
account or
annuity as contributions to an individual retirement
plan and not
to the qualified employer plan). For purposes of
subparagraph
(B), the requirements of subsection (a)(5) shall
not apply.
``(2) Special
rules for qualified employer plans.--For
purposes of
this title, a qualified employer plan shall not fail
to meet any
requirement of this title solely by reason of
establishing
and maintaining a program described in paragraph
(1).
``(3) Definitions.--For
purposes of this subsection--
``(A) Qualified
employer plan.--The term `qualified
employer plan'
has the meaning given such term by
section 72(p)(4);
except such term shall not include a
government
plan which is not a qualified plan unless the
plan is an
eligible deferred compensation plan (as
defined in
section 457(b)).
``(B) Voluntary
employee contribution.--The term
`voluntary
employee contribution' means any contribution
(other than
a mandatory contribution within the meaning
of section
411(c)(2)(C))--
[[Page 115 STAT.
96]]
``(i) which
is made by an individual as an
employee under
a qualified employer plan which
allows employees
to elect to make contributions
described in
paragraph (1), and
``(ii) with
respect to which the individual
has designated
the contribution as a contribution
to which this
subsection applies.''.
(b) Amendment
of ERISA.--
(1) In general.--Section
4 of the Employee Retirement Income
Security Act
of 1974 (29 U.S.C. 1003) is amended by adding at
the end the
following new subsection:
``(c) If a
pension plan allows an employee to elect to make
voluntary employee
contributions to accounts and annuities as provided
in section 408(q)
of the Internal Revenue Code of 1986, such accounts
and annuities
(and contributions thereto) shall not be treated as part
of such plan
(or as a separate pension plan) for purposes of any
provision of
this title other than section 403(c), 404, or 405 (relating
to exclusive
benefit, and fiduciary and co-fiduciary
responsibilities).''.
(2) Conforming
amendment.--Section 4(a) of such Act (29
U.S.C. 1003(a))
is amended by inserting ``or (c)'' after
``subsection
(b)''.
(c) <<NOTE:
Applicability. 26 USC 408 note.>> Effective Date.--The
amendments made
by this section shall apply to plan years beginning
after December
31, 2002.
Subtitle B--Expanding
Coverage
SEC.
611. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.
(a) Defined
Benefit Plans.--
(1) Dollar
limit.--
(A) Subparagraph
(A) of section 415(b)(1) <<NOTE: 26
USC 415.>>
(relating to limitation for defined benefit
plans) is amended
by striking ``$90,000'' and inserting
``$160,000''.
(B) Subparagraphs
(C) and (D) of section 415(b)(2)
are each amended
in the headings and the text, by
striking ``$90,000''
and inserting ``$160,000'',
(C) Paragraph
(7) of section 415(b) (relating to
benefits under
certain collectively bargained plans) is
amended by
striking ``the greater of $68,212 or one-half
the amount
otherwise applicable for such year under
paragraph (1)(A)
for `$90,000' '' and inserting ``one-
half the amount
otherwise applicable for such year under
paragraph (1)(A)
for `$160,000' ''.
(2) Limit reduced
when benefit begins before age 62.--
Subparagraph
(C) of section 415(b)(2) is amended by striking
``the social
security retirement age'' each place it appears in
the heading
and text and inserting ``age 62'' and by striking
the second
sentence.
(3) Limit increased
when benefit begins after age 65.--
Subparagraph
(D) of section 415(b)(2) is amended by striking
``the social
security retirement age'' each place it appears in
the heading
and text and inserting ``age 65''.
(4) Cost-of-living
adjustments.--Subsection (d) of section
415 (related
to cost-of-living adjustments) is amended--
(A) by striking
``$90,000'' in paragraph (1)(A) and
inserting ``$160,000'';
and
[[Page 115 STAT.
97]]
(B) in paragraph
(3)(A)--
(i) by striking
``$90,000'' in the heading and
inserting ``$160,000'';
and
(ii) by striking
``October 1, 1986'' and
inserting ``July
1, 2001''.
(5) Conforming
amendments.--
(A) Section
415(b)(2) <<NOTE: 26 USC 415.>> is
amended by
striking subparagraph (F).
(B) Section
415(b)(9) is amended to read as follows:
``(9) Special
rule for commercial airline pilots.--
``(A) In general.--Except
as provided in
subparagraph
(B), in the case of any participant who is
a commercial
airline pilot, if, as of the time of the
participant's
retirement, regulations prescribed by the
Federal Aviation
Administration require an individual to
separate from
service as a commercial airline pilot
after attaining
any age occurring on or after age 60 and
before age
62, paragraph (2)(C) shall be applied by
substituting
such age for age 62.
``(B) Individuals
who separate from service before
age 60.--If
a participant described in subparagraph (A)
separates from
service before age 60, the rules of
paragraph (2)(C)
shall apply.''.
(C) Section
415(b)(10)(C)(i) is amended by striking
``applied without
regard to paragraph (2)(F)''.
(b) Defined
Contribution Plans.--
(1) Dollar
limit.--Subparagraph (A) of section 415(c)(1)
(relating to
limitation for defined contribution plans) is
amended by
striking ``$30,000'' and inserting ``$40,000''.
(2) Cost-of-living
adjustments.--Subsection (d) of section
415 (related
to cost-of-living adjustments) is amended--
(A) by striking
``$30,000'' in paragraph (1)(C) and
inserting ``$40,000'';
and
(B) in paragraph
(3)(D)--
(i) by striking
``$30,000'' in the heading and
inserting ``$40,000'';
and
(ii) by striking
``October 1, 1993'' and
inserting ``July
1, 2001''.
(c) Qualified
Trusts.--
(1) Compensation
limit.--Sections 401(a)(17), 404(l),
408(k), and
505(b)(7) are each amended by striking ``$150,000''
each place
it appears and inserting ``$200,000''.
(2) Base period
and rounding of cost-of-living adjustment.--
Subparagraph
(B) of section 401(a)(17) is amended--
(A) by striking
``October 1, 1993'' and inserting
``July 1, 2001'';
and
(B) by striking
``$10,000'' both places it appears
and inserting
``$5,000''.
(d) Elective
Deferrals.--
(1) In general.--Paragraph
(1) of section 402(g) (relating
to limitation
on exclusion for elective deferrals) is amended to
read as follows:
``(1) In general.--
``(A) Limitation.--Notwithstanding
subsections
(e)(3) and
(h)(1)(B), the elective deferrals of any
individual
for any taxable year shall be included in
such individual's
[[Page 115 STAT.
98]]
gross income
to the extent the amount of such deferrals
for the taxable
year exceeds the applicable dollar
amount.
``(B) Applicable
dollar amount.--For purposes of
subparagraph
(A), the applicable dollar amount shall be
the amount
determined in accordance with the following
table:
``For taxable
years The applicable
beginning in
dollar amount:
calendar year:
2002........................................$11,000
2003........................................$12,000
2004........................................$13,000
2005........................................$14,000
2006 or thereafter.......................$15,000.''.
(2) Cost-of-living
adjustment.--Paragraph (5) of section
402(g) <<NOTE:
26 USC 402.>> is amended to read as follows:
``(5) Cost-of-living
adjustment.--In the case of taxable
years beginning
after December 31, 2006, the Secretary shall
adjust the
$15,000 amount under paragraph (1)(B) at the same
time and in
the same manner as under section 415(d), except that
the base period
shall be the calendar quarter beginning July 1,
2005, and any
increase under this paragraph which is not a
multiple of
$500 shall be rounded to the next lowest multiple of
$500.''.
(3) Conforming
amendments.--
(A) Section
402(g) (relating to limitation on
exclusion for
elective deferrals), as amended by
paragraphs
(1) and (2), is further amended by striking
paragraph (4)
and redesignating paragraphs (5), (6),
(7), (8), and
(9) as paragraphs (4), (5), (6), (7), and
(8), respectively.
(B) Paragraph
(2) of section 457(c) is amended by
striking ``402(g)(8)(A)(iii)''
and inserting
``402(g)(7)(A)(iii)''.
(C) Clause
(iii) of section 501(c)(18)(D) is amended
by striking
``(other than paragraph (4) thereof )''.
(e) Deferred
Compensation Plans of State and Local Governments and
Tax-Exempt Organizations.--
(1) In general.--Section
457 (relating to deferred
compensation
plans of State and local governments and tax-exempt
organizations)
is amended--
(A) in subsections
(b)(2)(A) and (c)(1) by striking
``$7,500''
each place it appears and inserting ``the
applicable
dollar amount''; and
(B) in subsection
(b)(3)(A) by striking ``$15,000''
and inserting
``twice the dollar amount in effect under
subsection
(b)(2)(A)''.
(2) Applicable
dollar amount; cost-of-living adjustment.--
Paragraph (15)
of section 457(e) is amended to read as follows:
``(15) Applicable
dollar amount.--
``(A) In general.--The
applicable dollar amount
shall be the
amount determined in accordance with the
following table:
``For taxable
years The applicable
beginning in
dollar amount:
calendar year:
2002........................................$11,000
2003........................................$12,000
2004........................................$13,000
[[Page 115 STAT.
99]]
2005........................................$14,000
2006 or thereafter..........................$15,000.
``(B) Cost-of-living
adjustments.--In the case of
taxable years
beginning after December 31, 2006, the
Secretary shall
adjust the $15,000 amount under
subparagraph
(A) at the same time and in the same manner
as under section
415(d), except that the base period
shall be the
calendar quarter beginning July 1, 2005,
and any increase
under this paragraph which is not a
multiple of
$500 shall be rounded to the next lowest
multiple of
$500.''.
(f ) Simple
Retirement Accounts.--
(1) Limitation.--Clause
(ii) of section
408(p)(2)(A)
<<NOTE: 26 USC 408.>> (relating to general rule
for qualified
salary reduction arrangement) is amended by
striking ``$6,000''
and inserting ``the applicable dollar
amount''.
(2) Applicable
dollar amount.--Subparagraph (E) of 408(p)(2)
is amended
to read as follows:
``(E) Applicable
dollar amount; cost-of-living
adjustment.--
``(i) In general.--For
purposes of
subparagraph
(A)(ii), the applicable dollar amount
shall be the
amount determined in accordance with
the following
table:
``For years
The applicable
beginning in
dollar amount:
calendar year:
2002................................
$7,000
2003................................
$8,000
2004................................
$9,000
2005 or thereafter..................$10,000.
``(ii) Cost-of-living
adjustment.--In the case
of a year beginning
after December 31, 2005, the
Secretary shall
adjust the $10,000 amount under
clause (i)
at the same time and in the same manner
as under section
415(d), except that the base
period taken
into account shall be the calendar
quarter beginning
July 1, 2004, and any increase
under this
subparagraph which is not a multiple of
$500 shall
be rounded to the next lower multiple
of $500.''.
(3) Conforming
amendments.--
(A) Subclause
(I) of section 401(k)(11)(B)(i) is
amended by
striking ``$6,000'' and inserting ``the
amount in effect
under section 408(p)(2)(A)(ii)''.
(B) Section
401(k)(11) is amended by striking
subparagraph
(E).
(g) Certain
Compensation Limits.--
(1) In general.--Subparagraph
(A) of section 401(c)(2)
(defining earned
income) is amended by adding at the end thereof
the following
new sentence: ``For purposes of this part only
(other than
sections 419 and 419A), this subparagraph shall be
applied as
if the term `trade or business' for purposes of
section 1402
included service described in section
1402(c)(6).''.
(2) Simple
retirement accounts.--Clause (ii) of section
408(p)(6)(A)
(defining self-employed) is amended by adding at
the end the
following new sentence: ``The preceding sentence
shall be applied
as if the term `trade or business' for purposes
of section
1402 included service described in section
1402(c)(6).''.
[[Page 115 STAT.
100]]
(h) Rounding
Rule Relating to Defined Benefit Plans and Defined
Contribution
Plans.--Paragraph (4) of section 415(d) <<NOTE: 26 USC
415.>>
is amended to read as follows:
``(4) Rounding.--
``(A) $160,000
amount.--Any increase under
subparagraph
(A) of paragraph (1) which is not a
multiple of
$5,000 shall be rounded to the next lowest
multiple of
$5,000.
``(B) $40,000
amount.--Any increase under
subparagraph
(C) of paragraph (1) which is not a
multiple of
$1,000 shall be rounded to the next lowest
multiple of
$1,000.''.
(i) Effective
Dates.--
(1) <<NOTE:
Applicability. 26 USC 415 note.>> In general.--
The amendments
made by this section shall apply to years
beginning after
December 31, 2001.
(2) Defined
benefit plans.--The amendments made by
subsection
(a) shall apply to years ending after December 31,
2001.
SEC.
612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE
PROPRIETORS.
(a) In General.--Subparagraph
(B) of section 4975(f )(6) (relating
to exemptions
not to apply to certain transactions) is amended by adding
at the end the
following new clause:
``(iii) Loan
exception.--For purposes of
subparagraph
(A)(i), the term `owner-employee'
shall only
include a person described in subclause
(II) or (III)
of clause (i).''.
(b) Amendment
of ERISA.--Section 408(d)(2) of the Employee
Retirement Income
Security Act of 1974 (29 U.S.C. 1108(d)(2)) is amended
by adding at
the end the following new subparagraph:
``(C) For purposes
of paragraph (1)(A), the term `owner-employee'
shall only include
a person described in clause (ii) or (iii) of
subparagraph
(A).''.
(c) <<NOTE:
Applicability. 26 USC 4975 note.>> Effective Date.--The
amendment made
by this section shall apply to years beginning after
December 31,
2001.
SEC.
613. MODIFICATION OF TOP-HEAVY RULES.
(a) Simplification
of Definition of Key Employee.--
(1) In general.--Section
416(i)(1)(A) (defining key
employee) is
amended--
(A) by striking
``or any of the 4 preceding plan
years'' in
the matter preceding clause (i);
(B) by striking
clause (i) and inserting the
following:
``(i) an officer
of the employer having an
annual compensation
greater than $130,000,'';
(C) by striking
clause (ii) and redesignating
clauses (iii)
and (iv) as clauses (ii) and (iii),
respectively;
and
(D) by striking
the second sentence in the matter
following clause
(iii), as redesignated by subparagraph
(C), and by
inserting the following: ``in the case of
plan years
beginning after December 31, 2002, the
$130,000 amount
in clause (i) shall be adjusted at the
same time and
in the same manner as under section
415(d), except
that the base period shall be the
calendar quarter
beginning July 1, 2001, and any
increase under
this sentence which is not a multiple of
$5,000 shall
be rounded to the next lower multiple of
$5,000.''.
[[Page 115 STAT.
101]]
(2) Conforming
amendment.--Section
416(i)(1)(B)(iii)
<<NOTE: 26 USC 416.>> is amended by striking
``and subparagraph
(A)(ii)''.
(b) Matching
Contributions Taken Into Account for Minimum
Contribution
Requirements.--Section 416(c)(2)(A) (relating to defined
contribution
plans) is amended by adding at the end the following:
``Employer matching
contributions (as defined in section 401(m)(4)(A))
shall be taken
into account for purposes of this subparagraph (and any
reduction under
this sentence shall not be taken into account in
determining
whether section 401(k)(4)(A) applies).''.
(c) Distributions
During Last Year Before Determination Date Taken
Into Account.--
(1) In general.--Paragraph
(3) of section 416(g) is amended
to read as
follows:
``(3) Distributions
during last year before determination
date taken
into account.--
``(A) In general.--For
purposes of determining--
``(i) the present
value of the cumulative
accrued benefit
for any employee, or
``(ii) the
amount of the account of any
employee,
such present
value or amount shall be increased by the
aggregate distributions
made with respect to such
employee under
the plan during the 1-year period ending
on the determination
date. The preceding sentence shall
also apply
to distributions under a terminated plan
which if it
had not been terminated would have been
required to
be included in an aggregation group.
``(B) 5-year
period in case of in-service
distribution.--In
the case of any distribution made for
a reason other
than separation from service, death, or
disability,
subparagraph (A) shall be applied by
substituting
`5-year period' for `1-year period'.''.
(2) Benefits
not taken into account.--Subparagraph (E) of
section 416(g)(4)
is amended--
(A) by striking
``last 5 years'' in the heading and
inserting ``last
year before determination date''; and
(B) by striking
``5-year period'' and inserting ``1-
year period''.
(d) Definition
of Top-Heavy Plans.--Paragraph (4) of section 416(g)
(relating to
other special rules for top-heavy plans) is amended by
adding at the
end the following new subparagraph:
``(H) Cash
or deferred arrangements using
alternative
methods of meeting nondiscrimination
requirements.--The
term `top-heavy plan' shall not
include a plan
which consists solely of--
``(i) a cash
or deferred arrangement which
meets the requirements
of section 401(k)(12), and
``(ii) matching
contributions with respect to
which the requirements
of section 401(m)(11) are
met.
If, but for
this subparagraph, a plan would be treated
as a top-heavy
plan because it is a member of an
aggregation
group which is a top-heavy group,
contributions
under the plan may be taken into account
in determining
whether any other plan in the group meets
the requirements
of subsection (c)(2).''.
[[Page 115 STAT.
102]]
(e) Frozen
Plan Exempt From Minimum Benefit Requirement.--
Subparagraph
(C) of section 416(c)(1) (relating to defined benefit
plans) is amended--
(A) by striking
``clause (ii)'' in clause (i) and
inserting ``clause
(ii) or (iii)''; and
(B) by adding
at the end the following:
``(iii) Exception
for frozen plan.--For
purposes of
determining an employee's years of
service with
the employer, any service with the
employer shall
be disregarded to the extent that
such service
occurs during a plan year when the
plan benefits
(within the meaning of section
410(b)) no
key employee or former key employee.''.
(f ) <<NOTE:
Applicability. 26 USC 416 note.>> Effective Date.--The
amendments made
by this section shall apply to years beginning after
December 31,
2001.
SEC.
614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF
DEDUCTION LIMITS.
(a) In General.--Section
404 <<NOTE: 26 USC 404.>> (relating to
deduction for
contributions of an employer to an employees' trust or
annuity plan
and compensation under a deferred payment plan) is amended
by adding at
the end the following new subsection:
``(n) Elective
Deferrals Not Taken Into Account for Purposes of
Deduction Limits.--Elective
deferrals (as defined in section 402(g)(3))
shall not be
subject to any limitation contained in paragraph (3), (7),
or (9) of subsection
(a), and such elective deferrals shall not be taken
into account
in applying any such limitation to any other
contributions.''.
(b) <<NOTE:
Applicability. 26 USC 404 note.>> Effective Date.--The
amendment made
by this section shall apply to years beginning after
December 31,
2001.
SEC.
615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION
PLANS OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS.
(a) In General.--Subsection
(c) of section 457 (relating to deferred
compensation
plans of State and local governments and tax-exempt
organizations),
as amended by section 611, is amended to read as
follows:
``(c) Limitation.--The
maximum amount of the compensation of any one
individual which
may be deferred under subsection (a) during any taxable
year shall not
exceed the amount in effect under subsection (b)(2)(A)
(as modified
by any adjustment provided under subsection (b)(3)).''.
(b) <<NOTE:
Applicability. 26 USC 457 note.>> Effective Date.--The
amendment made
by subsection (a) shall apply to years beginning after
December 31,
2001.
SEC.
616. DEDUCTION LIMITS.
(a) Modification
of Limits.--
(1) Stock bonus
and profit sharing trusts.--
(A) In general.--Subclause
(I) of section
404(a)(3)(A)(i)
(relating to stock bonus and profit
sharing trusts)
is amended by striking ``15 percent''
and inserting
``25 percent''.
(B) Conforming
amendment.--Subparagraph (C) of
section 404(h)(1)
is amended by striking ``15 percent''
each place
it appears and inserting ``25 percent''.
(2) Defined
contribution plans.--
[[Page 115 STAT.
103]]
(A) In general.--Clause
(v) of section <<NOTE: 26
USC 404.>>
404(a)(3)(A) (relating to stock bonus and
profit sharing
trusts) is amended to read as follows:
``(v) Defined
contribution plans subject to
the funding
standards.--Except as provided by the
Secretary,
a defined contribution plan which is
subject to
the funding standards of section 412
shall be treated
in the same manner as a stock
bonus or profit-sharing
plan for purposes of this
subparagraph.''.
(B) Conforming
amendments.--
(i) Section
404(a)(1)(A) is amended by
inserting ``(other
than a trust to which paragraph
(3) applies)''
after ``pension trust''.
(ii) Section
404(h)(2) is amended by striking
``stock bonus
or profit-sharing trust'' and
inserting ``trust
subject to subsection
(a)(3)(A)''.
(iii) The heading
of section 404(h)(2) is
amended by
striking ``stock bonus and profit-
sharing trust''
and inserting ``certain trusts''.
(b) Compensation.--
(1) In general.--Section
404(a) (relating to general rule)
is amended
by adding at the end the following:
``(12) Definition
of compensation.--For purposes of
paragraphs
(3), (7), (8), and (9), the term `compensation' shall
include amounts
treated as `participant's compensation' under
subparagraph
(C) or (D) of section 415(c)(3).''.
(2) Conforming
amendments.--
(A) Subparagraph
(B) of section 404(a)(3) is amended
by striking
the last sentence thereof.
(B) Clause
(i) of section 4972(c)(6)(B) is amended
by striking
``(within the meaning of section 404(a))''
and inserting
``(within the meaning of section 404(a)
and as adjusted
under section 404(a)(12))''.
(c) <<NOTE:
Applicability. 26 USC 404 note.>> Effective Date.--The
amendments made
by this section shall apply to years beginning after
December 31,
2001.
SEC.
617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH
CONTRIBUTIONS.
(a) In General.--Subpart
A of part I of subchapter D of chapter 1
(relating to
deferred compensation, etc.) is amended by inserting after
section 402
the following new section:
``SEC. 402A.
OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH
CONTRIBUTIONS.
``(a) General
Rule.--If an applicable retirement plan includes a
qualified Roth
contribution program--
``(1) any designated
Roth contribution made by an employee
pursuant to
the program shall be treated as an elective deferral
for purposes
of this chapter, except that such contribution
shall not be
excludable from gross income, and
``(2) such
plan (and any arrangement which is part of such
plan) shall
not be treated as failing to meet any requirement of
this chapter
solely by reason of including such program.
``(b) Qualified
Roth Contribution Program.--For purposes of this
section--
``(1) In general.--The
term `qualified Roth contribution
program' means
a program under which an employee may elect to
make designated
Roth contributions in lieu of all or
[[Page 115 STAT.
104]]
a portion of
elective deferrals the employee is otherwise
eligible to
make under the applicable retirement plan.
``(2) Separate
accounting required.--A program shall not be
treated as
a qualified Roth contribution program unless the
applicable
retirement plan--
``(A) establishes
separate accounts (`designated
Roth accounts')
for the designated Roth contributions of
each employee
and any earnings properly allocable to the
contributions,
and
``(B) maintains
separate recordkeeping with respect
to each account.
``(c) Definitions
and Rules Relating to Designated Roth
Contributions.--For
purposes of this section--
``(1) Designated
roth contribution.--The term `designated
Roth contribution'
means any elective deferral which--
``(A) is excludable
from gross income of an employee
without regard
to this section, and
``(B) the employee
designates (at such time and in
such manner
as the Secretary may prescribe) as not being
so excludable.
``(2) Designation
limits.--The amount of elective deferrals
which an employee
may designate under paragraph (1) shall not
exceed the
excess (if any) of--
``(A) the maximum
amount of elective deferrals
excludable
from gross income of the employee for the
taxable year
(without regard to this section), over
``(B) the aggregate
amount of elective deferrals of
the employee
for the taxable year which the employee
does not designate
under paragraph (1).
``(3) Rollover
contributions.--
``(A) In general.--A
rollover contribution of any
payment or
distribution from a designated Roth account
which is otherwise
allowable under this chapter may be
made only if
the contribution is to--
``(i) another
designated Roth account of the
individual
from whose account the payment or
distribution
was made, or
``(ii) a Roth
IRA of such individual.
``(B) Coordination
with limit.--Any rollover
contribution
to a designated Roth account under
subparagraph
(A) shall not be taken into account for
purposes of
paragraph (1).
``(d) Distribution
Rules.--For purposes of this title--
``(1) Exclusion.--Any
qualified distribution from a
designated
Roth account shall not be includible in gross income.
``(2) Qualified
distribution.--For purposes of this
subsection--
``(A) In general.--The
term `qualified distribution'
has the meaning
given such term by section 408A(d)(2)(A)
(without regard
to clause (iv) thereof ).
``(B) Distributions
within nonexclusion period.--A
payment or
distribution from a designated Roth account
shall not be
treated as a qualified distribution if such
payment or
distribution is made within the 5-taxable-
year period
beginning with the earlier of--
``(i) the first
taxable year for which the
individual
made a designated Roth contribution to
any designated
[[Page 115 STAT.
105]]
Roth account
established for such individual under
the same applicable
retirement plan, or
``(ii) if a
rollover contribution was made to
such designated
Roth account from a designated
Roth account
previously established for such
individual
under another applicable retirement
plan, the first
taxable year for which the
individual
made a designated Roth contribution to
such previously
established account.
``(C) Distributions
of excess deferrals and
contributions
and earnings thereon.--The term `qualified
distribution'
shall not include any distribution of any
excess deferral
under section 402(g)(2) or any excess
contribution
under section 401(k)(8), and any income on
the excess
deferral or contribution.
``(3) Treatment
of distributions of certain excess
deferrals.--Notwithstanding
section 72, if any excess deferral
under section
402(g)(2) attributable to a designated Roth
contribution
is not distributed on or before the 1st April 15
following the
close of the taxable year in which such excess
deferral is
made, the amount of such excess deferral shall--
``(A) not be
treated as investment in the contract,
and
``(B) be included
in gross income for the taxable
year in which
such excess is distributed.
``(4) Aggregation
rules.--Section 72 shall be applied
separately
with respect to distributions and payments from a
designated
Roth account and other distributions and payments
from the plan.
``(e) Other
Definitions.--For purposes of this section--
``(1) Applicable
retirement plan.--The term `applicable
retirement
plan' means--
``(A) an employees'
trust described in section
401(a) which
is exempt from tax under section 501(a),
and
``(B) a plan
under which amounts are contributed by
an individual's
employer for an annuity contract
described in
section 403(b).
``(2) Elective
deferral.--The term `elective deferral' means
any elective
deferral described in subparagraph (A) or (C) of
section 402(g)(3).''.
(b) Excess
Deferrals.--Section 402(g) <<NOTE: 26 USC 402.>>
(relating to
limitation on exclusion for elective deferrals) is
amended--
(1) by adding
at the end of paragraph (1)(A) (as added by
section 201(c)(1))
the following new sentence: ``The preceding
sentence shall
not apply the portion of such excess as does not
exceed the
designated Roth contributions of the individual for
the taxable
year.''; and
(2) by inserting
``(or would be included but for the last
sentence thereof
)'' after ``paragraph (1)'' in paragraph
(2)(A).
(c) Rollovers.--Subparagraph
(B) of section 402(c)(8) is amended by
adding at the
end the following:
``If any portion
of an eligible rollover distribution is
attributable
to payments or distributions from a
designated
Roth account (as defined in section 402A), an
eligible retirement
plan with respect to such portion
shall include
only another designated Roth account and a
Roth IRA.''.
(d) Reporting
Requirements.--
[[Page 115 STAT.
106]]
(1) W-2 information.--Section
6051(a)(8) <<NOTE: 26 USC
6051.>>
is amended by inserting ``, including the amount of
designated
Roth contributions (as defined in section 402A)''
before the
comma at the end.
(2) Information.--Section
6047 is amended by redesignating
subsection
(f ) as subsection (g) and by inserting after
subsection
(e) the following new subsection:
``(f ) Designated
Roth Contributions.--The Secretary shall require
the plan administrator
of each applicable retirement plan (as defined in
section 402A)
to make such returns and reports regarding designated Roth
contributions
(as defined in section 402A) to the Secretary,
participants
and beneficiaries of the plan, and such other persons as
the Secretary
may prescribe.''.
(e) Conforming
Amendments.--
(1) Section
408A(e) is amended by adding after the first
sentence the
following new sentence: ``Such term includes a
rollover contribution
described in section 402A(c)(3)(A).''.
(2) The table
of sections for subpart A of part I of
subchapter
D of chapter 1 is amended by inserting after the item
relating to
section 402 the following new item:
``Sec. 402A.
Optional treatment of elective deferrals as
Roth contributions.''.
(f ) <<NOTE:
Applicability. 26 USC 402 note.>> Effective Date.--The
amendments made
by this section shall apply to taxable years beginning
after December
31, 2005.
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
-------------------------------------------------------------
Joint return
Head of a All other cases Applicable
---------------------
household -------------------- percentage
--------------------
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.
[[Page 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
[[Page 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 | 
