over Pub, Law 93-406 - 128 - September 2, 1974 88 STAT. 956 26 USC 401. owner-employees (within the meaning of section 401(c)(3)), is the sum of “(A) the excess (if any) of "(i) the amount contributed under the plan by each owner-employee (as an employee) for the taxable year, “(ii) the amount permitted to be contributed by each owner-employee (as an employee) for such year, and "(B) the amount determined under this paragraph for the preceding taxable year of the employer, reduced by the excess (if any) of the amount described in subparagraph (A)(ii) over the amount described in subparagraph (A) (). “(3) DEFINED BENEFIT PLANS.-The amount determined under this paragraph, in the case of a defined benefit plan, is the amount contributed under the plan by the employer during the taxa ile year or any prior taxable year beginning after Decenber 31, 1975, if ** (A) as of the close of the taxable year, the full funding limitation of the plan (determined under section 412(c)(7)) is zero, and “(B) such amount has not been deductible for the taxable year or any prior taxable year. “(4) DEFINED CONTRIBUTION PLANS.--The amount determined under this paragraph, in the case of a plan other than a detined benefit plan, is the portion of the amounts contributed under the plan by the employer during the taxable year and each prior taxable year beginning after December 31, 1975, which has not been deductible for the taxable year or any prior taxable year. *(5) CORRECTING DISTRIBUTION.- For purposes of this subsection the term 'correcting distribution' means “(A) in the case of a contribution made by an owneremployee as an employee, regardless of the type of plan, the amount determined under paragraph (2) distributed to the owner-employee who contributed such amount, “(B) in the case of a defined benefit plan, the amount determined under paragraph (3) which is distributed from the plan to the employer, and "(C) in the case of a defined contribution plan, the amount determined under paragraph (4) which is distributed from the plan to the employer or to the employee to the account of whom the amount described was contributed. "(c) AMOUNT PERMITTED TO BE CONTRIBUTED OWNEREMPLOYEE. --For purposes of subsection (b) (2), the amount permitted to be contributed under a plan by an owner-employee (as an employee) for any taxable year is the smallest of the following: "(1) $2,500, "(2) 10 percent of the earned income (as defined in section 401(c)(2)) for such taxable year derived by such owneremployee from the trade or business with respect to which the plan is established, or “(3) the amount of the contribution which would be contributed by the owner-employee (as an employee) if such contribution were made at the rate of contributions permitted to be made by employees other than owner-employees. In any case in which there are no employees other than owneremployees, the amount determined under the preceding sentence shall be zero. а BY September 2, 1974 . 129 - Pub. Law 93-406 88 STAT, 957 “(d) Cross REFERENCE.— "For disallowance of deduction for taxes paid under this section, see section 275.". (2) CLERICAL AMENDMENT.—The table of sections for chapter 43 is amnended by inserting after the item relating to section 4971 the following new item: “Sec. 4972. Tax on excess contributions for self-employed individuals.". (8) PREMATURE DISTRIBUTIONS TO OWNER-EMPLOYEES. (1) IN GENERAL.–Subparagraph (B) of section 72(m)(5) 26 USC 72. (relating to penalties applicable to certain amounts received by owner-employees) is amended to read as follows: “(B) If a person receives an amount to which this para- able year.” (A) Subparagraphs (C), (D), and (E) of section 72(m) Repeals. (B) The second sentence of section 46(a)(3) and the sec- (C) The third sentence of section 901 (a), as amended by (D) Subparagraph (A) of section 56(a)(2) and paragraph (1) of section 56(c), as each is amended by section 2005 (c) (7) of this Act, are each amended by striking out “402(e)" and inserting in lieu thereof “72 (m) (5) (B), 402 (e)”. (E) Section 404(a) (2) is amended by striking out “(16)” and inserting in lieu thereof“(16), (17), (18)”. (F) Clause (ii) of section 404 (a) (9) (B) is amended to read as follows: “(ii) without regard to the second sentence of para graph (3); and”. (h) WITHDRAWAL OF EMPLOYEE CONTRIBUTIONS OF OWNEREMPLOYEES. (1) Section 401 (d) (4) (B) (relating to additional require- ner-employee as an employee" after “benefits". (3) Section 72(m) (5) (A) (i) is amended by striking out (1) The amendments made by subsections (a) and (b) apply note. to taxable years beginning after December 31, 1973. 26 USC 404 75-623 - 74 - pt. 1 - 25 Pub. Law 93-406 - 130 September 2, 1974 88 STAT. 958 26 USC 401 note. in Ante, p. 952. 26 USC 1379. 26 USC 72 note. 26 USC 211. (2) The amendments made by subsection (c) apply to (A) taxable years beginning after December 31, 1975, and (B) any other taxable years beginning after December 31, the enactment of this Act. (4) The amendments made by subsections (e) and (f) apply (5) The amendments made by subsection (g) apply to distributions made in taxable years beginning after December 31, 1975. (6) The amendments made by subsection (h) apply to taxable years ending after the date of enactment of this Act. (1) IN GENERAL.—Part VII of subchapter B of chapter 1 (relat- 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), “12) for an individual retirement annuity described in section 408 (b), or "13) for a retirement bond described in section 409 (but only issuance). “(1) MAXIMUM DEDUCTION.- The amount allowable as a deduc- OTHER PLANS.—No deduction is “(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), "(ii) 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 CERTAIN а September 2, 1974 - 131 Pub. Law 93-406 88 STAT. 959 by an agency or instrumentality of any of the foregoing, or IN ARRIVING AT ADJUSTED GROSS “(B) amounts were contributed by his employer for an annuity contract described in section 403(b) (whether or not 26 USC 403. his rights in such contract are nonforfeitable). *(3) CONTRIBUTIONS AFTER AGE 701.—No deduction is allowed under subsection (a) with respect to any payınent described in subsection (a) which is made during the taxable year of an individual who has attained age 7014, 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). Post, pp. 991, “(5) AMOUNTS CONTRIBUTED UNDER ENDOWMENT CONTRACT.- 969, 964. In the case of an endowment contract described in section 408(b), Supra. no deduction is allowed under subsectior. (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 INCOME.—Section 62 (defining adjusted gross incorne) 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 26 USC 401. 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. Pub. Law 93-406 88 STAT. 960 - 132 September 2, 1974 “(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 701/2, 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 indi. vidual 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 7012, 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 nart 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 |
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