The Technical Corrections Bill was introduced as H.R. 2645. Following is the portion dealing with Roth IRAs.
SEC. 5. AMENDMENTS RELATED TO TITLE III OF 1997 ACT.
(a) Amendments Related to Section 301 of 1997 Act. -- Section 219(g) of the 1986 Code is amended --
(1) by inserting "or the individual's spouse" after "individual" in paragraph (1), and
(2) by striking paragraph (7) and inserting:
"(7) Special rule for spouses who are not active participants. -- If this subsection applies to an individual for any taxable year solely because their spouse is an active participant, then, in applying this subsection to the individual (but not their spouse) --
"(A) the applicable dollar amount under paragraph (3)(B)(i) shall be $150,000, and
"(B) the amount applicable under paragraph (2)(A)(ii) shall be $10,000."
(b) Amendments Related to Section 302 of 1997 Act. --
(1) Section 408A(c)(3)(A) of the 1986 Code is amended by striking "shall be reduced" and inserting "shall not exceed an amount equal to the amount determined under paragraph (2)(A) for such taxable year, reduced".
(2) Section 408A(c)(3) of the 1986 Code (relating to limits based on modified adjusted gross income) is amended --
(A) by inserting "or a married individual filing a separate return" after "joint return" in subparagraph (A)(ii), and
(B) by striking "and the deduction under section 219 shall be taken into account" in subparagraph (C)(i).
(3) Section 408A(d)(2) of the 1986 Code (defining qualified distribution) is amended by striking subparagraph (B) and inserting the following:
"(B) Distributions within nonexclusion period. -- A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under subparagraph (A) if such payment or distribution is made before the exclusion date for the Roth IRA.
"(C) Exclusion date. -- For purposes of this section, the exclusion date for any Roth IRA is the first day of the taxable year immediately following the 5-taxable year period beginning with --
"(i) the first taxable year for which a contribution to any Roth IRA maintained for the benefit of the individual was made, or
"(ii) in the case of a Roth IRA to which 1 or more qualified rollover contributions were made --
"(I) from an individual retirement plan other than a Roth IRA, or
"(II) from another Roth IRA to the extent such contributions are properly allocable to contributions described in subclause (I),
the most recent taxable year for which any such qualified rollover contribution was made."
(4) Section 408A(d)(3) of the 1986 Code (relating to rollovers from IRAs other than Roth IRAs) is amended by adding at the end the following:
"(F) Special rule for applying section 72. --
"(i) In general. -- If --
"(I) any distribution from a Roth IRA is made before the exclusion date, and
"(II) any portion of such distribution is properly allocable to a qualified rollover contribution described in paragraph (2)(C)(ii),
then section 72(t) shall be applied as if such portion were includible in gross income.
"(ii) Limitation. -- Clause (i) shall apply only to the extent of the amount includible in gross income under subparagraph (A)(i) by reason of the qualified rollover contribution.
"(G) Special rules for contributions to which 4-year averaging applies. -- In the case of a qualified rollover contribution to a Roth IRA of a distribution to which subparagraph (A)(iii) applied, the following rules shall apply:
"(i) Death of distributee. --
"(I) In general. -- If the individual required to include amounts in gross income under such subparagraph dies before all of such amounts are included, all remaining amounts shall be included in gross income for the taxable year which includes the date of death.
"(II) Special rule for surviving spouse. -- If the spouse of the individual described in subclause (I) acquires the Roth IRA to which such qualified rollover contribution is properly allocable, the spouse may elect to include the remaining amounts described in subclause (I) in the spouse's gross income in the taxable years of the spouse ending with or within the taxable years of such individual in which such amounts would otherwise have been includible.
"(ii) Additional tax for early distribution. --
"(I) In general. -- If any distribution from a Roth IRA is made before the exclusion date, and any portion of such distribution is properly allocable to such qualified rollover contribution, the distributee's tax under this chapter for the taxable year in which the amount is received shall be increased by 10 percent of the amount of such portion not in excess of the amount includible in gross income under subparagraph (A)(i) by reason of such qualified rollover contribution.
"(II) Treatment of tax. -- For purposes of this title, any tax imposed by subclause (I) shall be treated as a tax imposed by section 72(t) and shall be in addition to any other tax imposed by such section."
(5)(A) Section 408A(d)(4) of the 1986 Code is amended to read as follows:
"(4) Aggregation and ordering rules. --
"(A) Aggregation rules. -- Section 408(d)(2) shall be applied separately with respect to --
"(i) Roth IRAs and other individual retirement plans,
"(ii) Roth IRAs described in paragraph (2)(C)(ii) and Roth IRAs not so described, and
"(iii) Roth IRAs described in paragraph (2)(C)(ii) with different exclusion dates.
"(B) Ordering rules. -- For purposes of applying section 72 to any distribution from a Roth IRA which is not a qualified distribution, such distribution shall be treated as made --
"(i) from contributions to the extent that the amount of such distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate contributions to the Roth IRA, and "(ii) from such contributions in the following order:
"(I) Qualified rollover contributions to the extent includible in gross income in the manner described in paragraph (3)(A)(iii).
"(II) Qualified rollover contributions not described in subclause (I) to the extent includible in gross income under paragraph (3)(A).
"(III) Contributions not described in subclause (I) or (II).
Such rules shall also apply in determining the character of qualified rollover contributions from one Roth IRA to another Roth IRA."
(B) Section 408A(d)(1) of the 1986 Code is amended to read as follows:
"(1) Exclusion. -- Any qualified distribution from a Roth IRA shall not be includible in gross income."
(6)(A) Section 408A(d) of the 1986 Code (relating to distribution rules) is amended by adding at the end the following:
"(6) Taxpayer may make adjustments before due date. --
"(A) In general. -- Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan).
"(B) Special rules. --
"(i) Transfer of earnings. -- Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution.
"(ii) No deduction. -- Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.
"(C) Due date. -- For purposes of this paragraph, the due date for any taxable year is the last date for filing the return of tax for such taxable year (including extensions)."
(B) Section 408A(d)(3) of the 1986 Code, as amended by this subsection, is amended by striking subparagraph (D) and by redesignating subparagraphs (E), (F), and (G) as subparagraphs (D), (E), and (F), respectively.
(7) Section 302(b) of the 1997 Act is amended by striking "Section 4973(b)" and inserting "Section 4973".
(8) Section 408A of the 1986 Code is amended by adding at the end the following new subsection:
"(f) Individual Retirement Plan. -- For purposes of this section, except as provided by the Secretary, the term 'individual retirement plan' shall not include a simplified employee pension or a simple retirement account."
(c) Amendments Related to Section 303 of 1997 Act. --
(1) Section 72(t)(8)(E) of the 1986 Code is amended --
(A) by striking "120 days" and inserting "120th day", and
(B) by striking "60 days" and inserting "60th day".
(2)(A) Section 402(c) of the 1986 Code is amended by adding at the end the following:
"(11) Denial of rollover treatment for transfers of hardship distributions to individual retirement plans. --
This subsection shall not apply to the transfer of any hardship distribution described in section 401(k)(2)(B)(i)(IV) from a qualified cash or deferred arrangement to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B)."
(B) The amendment made by this paragraph shall apply to distributions made after December 31, 1997.