Conference Report Explanation For H.R. 2014
Section III -- Savings And Investment Tax Incentives
Roth IRA and Related Sections
III. SAVINGS AND INVESTMENT TAX INCENTIVES
A. Individual Retirement Arrangements
2. Tax-free nondeductible IRAs (sec. 301 of the House bill and sec. 302 of the Senate amendment)
Present Law
[240] No provision. However, present law provides that an individual can make nondeductible contributions to an IRA to the extent the individual cannot or does not make deductible contributions. Earnings on nondeductible contributions are includible in income when withdrawn.
House Bill
In general
[241] The House bill replaces present-law nondeductible IRAs with new American Dream IRAs ("AD IRAs") to which individuals may make nondeductible contributions of up to $2,000 annually. No income limits apply to AD IRAs, and contributions to AD IRAs are in addition to other IRA contributions. The $2,000 contribution limit is indexed for inflation in $50 increments.
Taxation of distributions
[242] Qualified distributions from an AD IRA are not includible in income. Qualified distributions are distributions (1) made after the 5-taxable year period beginning with the first taxable year for which a contribution was made to an AD IRA and (2) which are (a) made on or after the date on which the individual attains age 59-1/2, (b) made to a beneficiary on or after the death of the individual, (c) attributable to the individual's being disabled, or (d) for a qualified special purpose distribution. A qualified special purpose distribution is a distribution for first-time homebuyer expenses.
Conversions of IRAs to AD IRAs
[243] An IRA may be converted to an AD IRA before January 1, 1999. Amounts that would have been includible in income had the amounts converted been withdrawn are includible in income ratably over 4 years. The additional tax on early withdrawals does not apply to conversions of IRAs to AD IRAs.
Effective date
Taxable years beginning after December 31, 1997.
Senate Amendment
In general
[244] Same as the House bill, except that: (1) the new IRAs are called IRA Plus accounts and (2) no more than $2,000 of annual contributions can be made to all an individual's IRAs.
Taxation of distributions
[245] Same as the House bill, except that special purpose distributions also include distributions to long-term unemployed individuals.
Conversions of IRAs to AD IRAs
[246] Same as the House bill, except that conversions of an IRA to an IRA Plus can be made at any time. If the conversion is made before January 1, 1999, the amounts that would have been includible in income had the amounts converted been withdrawn are includible in income ratably over 4 years. In any case, the 10-percent tax on early withdrawals does not apply.
Effective date
Same as the House bill.
Conference Agreement
[247] The conference agreement follows the Senate amendment, with modifications. Under the conference agreement, the new IRA is called the "Roth IRA" rather than the IRA Plus. The maximum contribution that can be made to a Roth IRA is phased out for individuals with AGI between $95,000 and $110,000 and for joint filers with AGI between $150,000 and $160,000. Under the conference agreement, distributions to long-term unemployed individuals do not qualify as special purpose distributions. Thus, only first-time homebuyer expenses (as defined under the Senate amendment) qualify as special purpose distributions.
[248] Under the conference agreement, only taxpayers with AGI of less than $100,000 /51/ are eligible to roll over or convert an IRA into a Roth IRA.
[249] The conference agreement retains present-law nondeductible IRAs. Thus, an individual who cannot (or does not) make contributions to a deductible IRA or a Roth IRA can make contributions to a nondeductible IRA. In no case can contributions to all an individual's IRAs for a taxable year exceed $2,000.
3. Modifications to early withdrawal tax (sec. 301 of the House bill and sec. 303 of the Senate amendment)
Present Law
[250] Under present law, a 10-percent additional tax applies to distributions from an IRA prior to age 59-1/2, unless an exception applies.
House Bill
[251] The House bill adds an additional exception to the early withdrawal tax for AD IRAs only. The early withdrawal tax does not apply to distributions from an AD IRA for first-time homebuyer expenses, subject to a $10,000 life-time cap.
[252] Effective date,--Taxable years beginning after December 31, 1997.
Senate Amendment
[253] The early withdrawal tax does not apply to distributions from any IRA for first-time homebuyer expenses or for long-term unemployed individuals.
Effective date.--Same as the House bill.
Conference Agreement
[254] The conference agreement follows the Senate amendment but does not include the provision relating to long-term unemployed individuals. /52/
4. IRA investments in coins and bullion (sec. 304 of the Senate amendment)
Present Law
[255] IRA assets may not be invested in collectibles. This prohibition does not apply to certain gold and silver coins or to coins issued by a State.
House Bill
[256] No provision.
Senate Amendment
[257] IRA assets may be invested in certain platinum coins and in certain gold, silver, platinum or palladium bullion.
[258] Effective date.--The provision is effective for taxable years beginning after December 31, 1997.
Conference Agreement
The conference agreement follows the Senate amendment.
FOOTNOTES TO SECTION III
/51/ For this purpose, AGI is determined before any amount includible in income as a result of the rollover or conversion.
/52/ As under the House bill and Senate amendment, the conference agreement includes a penalty-free withdrawal provision for education expenses.