60 consecutive days of service with the employer or employers maintaining the plan.

This paragraph shall not apply to a participant whose compensation for any 3 years during the 10-year period immediately preceding the year in which he separates from service exceeded the average compensation for such 3 years of all participants in such plan. For any year for which the paragraph applies to benefits with respect to a participant, paragraph (1)(A) and subsection (d)(1)(A) shall be applied with respect to such participant by substituting '37,500' for "75,000'."

(b) EFFECTIVE DATE.-The amendment made by this section shall apply to years beginning after December 31, 1978.

SEC. 154. CUSTODIAL ACCOUNTS FOR REGULATED INVESTMENT COMPANY STOCK.

(a) AMENDMENT OF SECTION 403.-Subparagraph (A) of section 403(b)(7) (relating to custodial accounts for regulated investment company stock) is amended to read as follows:

"(A) AMOUNTS PAID TREATED AS CONTRIBUTIONS.-For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfied the requirements of section 401(f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if

"(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account, and

"(ii) under the custodial account no such amounts may be paid or made available to any distributee before the employee dies, attains age 591⁄2, separates from service, becomes disabled (within the meaning of section 72(m)(7)), or encounters financial hardship.

(b) EFFECTIVE DATE.-The amendment made by this section shall apply to taxable years beginning after December 31, 1978.

SEC. 155. PENSION PLAN RESERVES.

(a) IN GENERAL.-Subsection (d) of section 805 (relating to pension plan reserves) is amended

(1) by striking out "or" at the end of paragraph (4);

(2) by striking out the period at the end of paragraph (5) and inserting in lieu thereof "; or"; and

(3) by adding at the end thereof the following new paragraph: "(6) purchased by

“(A) a governmental plan (within the meaning of section 414(d)), or

"(B) the Government of the United States, the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, for use in satisfying an obligation of such government, political subdivision, or agency or instrumentality to provide a benefit under a plan described in subparagraph (A).'

(b) EFFECTIVE DATE.-The amendments made by this section apply to taxable years beginning after December 31, 1978.

SEC. 156. ROLLOVER OF SECTION 403(b) ANNUITIES PERMITTED.

(a) GENERAL RULE.-Subsection (b) of section 403 (relating to taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school) is amended by adding at the end thereof the following new paragraph:

"(8) ROLLOVER AMOUNTS.—

"(A) GENERAL RULE.—If—

"(i) the balance to the credit of an employee is paid to him in a qualifying distribution,

"(ii) the employee transfers any portion of the property he receives in such distribution to an individual retirement plan or to an annuity contract described in paragraph (1), and

"(iii) in the case of a distribution of property other than money, the property so transferred consists of the property distributed,

then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.

“(B) QUALIFYING DISTRIBUTION DEFINED.—

“(i) IN GENERAL.-For purposes of subparagraph (A), the term 'qualifying distribution' means 1 or more distributions from an annuity contract described in paragraph (1) which would constitute a lump sum distribution within the meaning of section 402(e)(4)(A) (determined without regard to subparagraphs (B) and (H) of section 402(e)(4)) if such annuity contract were described in subsection (a).

"(ii) AGGREGATION OF ANNUITY CONTRACTS.-For purposes of this paragraph, all annuity contracts described in paragraph (1) purchased by an employer shall be treated as a single contract, and section 402(e)(4)(C) shall not apply.

"(C) CERTAIN RULES MADE Applicable.-Rules similar to the rules of subparagraphs (B), (C), and (E)(i) of section 402(a)(5) and of paragraphs (6) and (7) of section 402(a) shall apply for purposes of subparagraph (A)."

(b) TREATMENT OF ROLLOVER CONTRIBUTIONS.-Section 403(b)(1) (relating to annuities purchased by certain exempt organizations and public schools) is amended by adding at the end thereof the following new sentence: "For purposes of applying the rules of this subsection to amounts contributed by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or section 408(d)(3)(A)(iii) or 409(d)(3)(C) shall not be considered contributed by such employer."

(c) TECHNICAL AND CONFORMING ÅMENDMENTS.—

(1) Subparagraph (A) of section 408(d)(3) is amended by striking out "or" at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof "; or", and by adding at the end thereof the following new clause:

"(iii)(I) the entire amount received (including money and other property) represents the entire interest in the account or the entire value of the annuity,

"(II) no amount in the account and no part of the value of the annuity is attributable to any source other than a rollover contribution from an annuity contract described in section 403(b) and any earnings on such rollover, and

"(III) the entire amount thereof is paid into another annuity contract described in section 403(b) (for the

benefit of such individual) not later than the 60th day after he receives the payment or distribution." (2) Subparagraph (C) of section 409(b)(3) is amended

(A) by striking out "or an annuity plan described in section 403(a)" in the first sentence and inserting in lieu thereof "an annuity plan described in section 403(a), or an annuity contract described in section 403(b)", and

(B) by adding at the end thereof the following new sentence: "This subparagraph does not apply in the case of a transfer to an annuity contract described in section 403(b) unless no part of the value of such proceeds is attributable to any source other than a rollover contribution from such an annuity contract."

(3) Sections 219(b)(4), 220(b)(5), 408(a)(1), 409(a)(4), and 4973(b)(1)(A) are each amended by inserting "403(b)(8)," after "403(a)(4)," each place it appears.

(4) Section 2039(e) is amended by inserting after "403(a)(4)," the following: "section 403(b)(8) (but only to the extent such contribution is attributable to a distribution from a contract described in subsection (c)(3)),".

(5) Section 4973(c)(1) is amended by inserting after "account" the following: "(other than a rollover contribution described in section 403(b)(8), 408(d)(3)(A)(iii), or 409(d)(3)(C))”.

(d) EFFECTIVE DATE.-The amendments made by this section shall apply to distributions or transfers made after December 31, 1978, in taxable years beginning after such date.

SEC. 157. INDIVIDUAL RETIREMENT ACCOUNT TECHNICAL CHANGES. (a) EXTENSION OF PERIOD FOR MAKING INDIVIDUAL RETIREMENT PLAN CONTRIBUTIONS.

(1) AMENDMENT OF SECTION 219(c)(3).-Paragraph (3) of section 219(c) (relating to time when contributions deemed made in the case of retirement savings) is amended by striking out "not later than 45 days after the end of such taxable year" and inserting in lieu thereof "not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)". (2) AMENDMENT OF SECTION 220(c)(4).-Paragraph (4) of section 220(c) (relating to time when contributions deemed made in the case of retirement savings for certain married individuals) is amended by striking out "not later than 45 days after the end of such taxable year" and inserting in lieu thereof "not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)".

(3) EFFECTIVE DATE.-The amendments made by this subsection shall apply to taxable years beginning after December 31, 1977. (b) EXCESS CONTRIBUTIONS MAY BE DEDUCTED IN SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITATION.—

(1) AMENDMENT OF SECTION 219.-Subsection (c) of section 219 (relating to definitions and special rules for retirement savings) is amended by adding at the end thereof the following new paragraph:

"(5) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITATION.

“(A) IN GENERAL.-If for the taxable year the maximum amount allowable as a deduction under this section exceeds the amount contributed, then the taxpayer shall be treated

as having made an additional contribution for the taxable year in an amount equal to the lesser of

"(i) the amount of such excess, or

“(ii) the amount of the excess contributions for such taxable year (determined under section 4973(b)(2) without regard to subparagraph (C) thereof).

"(B) AMOUNT CONTRIBUTED.-For purposes of this paragraph, the amount contributed

"(i) shall be determined without regard to this paragraph, and

"(ii) shall not include any rollover contribution. "(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED FOR CLOSED YEAR.-Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section or section 220 for a prior taxable year for which the period for assessing deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year."

(2) AMENDMENT OF SECTION 220.-Subsection (c) of section 220 (relating to definitions and special rules for retirement savings for certain married individuals) is amended by adding at the end thereof the following new paragraph:

"(6) EXCESS CONTRIBUTIONS TREATED AS CONTRIBUTION MADE DURING SUBSEQUENT YEAR FOR WHICH THERE IS AN UNUSED LIMITATION.

“(A) IN GENERAL.-If for the taxable year the maximum amount allowable as a deduction under this section exceeds the amount contributed, then the taxpayer shall be treated as having made an additional contribution for the taxable year in an amount equal to the lesser of

"(i) the amount of such excess, or

“(ii) the amount of the excess contributions for such taxable year (determined under section 4973(b)(2) without regard to subparagraph (C) thereof).

"(B) AMOUNT CONTRIBUTED.-For purposes of this paragraph, the amount contributed

"(i) shall be determined without regard to this paragraph, and

"(ii) shall not include any rollover contribution. "(C) SPECIAL RULE WHERE EXCESS DEDUCTION WAS ALLOWED FOR CLOSED YEAR.-Proper reduction shall be made in the amount allowable as a deduction by reason of this paragraph for any amount allowed as a deduction under this section or section 219 for a prior taxable year for which the period for assessing a deficiency has expired if the amount so allowed exceeds the amount which should have been allowed for such prior taxable year."

(3) AMENDMENT OF SECTION 4973.-Paragraph (2) of section 4973(b) (defining excess contributions) is amended to read as follows:

"(2) the amount determined under this subsection for the preceding taxable year reduced by the sum of—

"(A) the distributions out of the account for the taxable year which were included in the gross income of the payee under section 408(d)(1),

"(B) the distributions out of the account for the taxable year to which section 408(d)(5) applies, and

"(C) the excess (if any) of the maximum amount allowable as a deduction under section 219 or 220 for the taxable year over the amount contributed (determined without regard to sections 219(c)(5) and 220(c)(6)) to the accounts or for the annuities or bonds for the taxable year."

(4) EFFECTIVE DATE.—

(A) IN GENERAL.-The amendments made by this subsection shall apply to the determination of deductions for taxable years beginning after December 31, 1975.

(B) TRANSITIONAL RULE.-If, but for this subparagraph, an amount would be allowable as a deduction by reason of section 219(c)(5) or 220(c)(6) of the Internal Revenue Code of 1954 for a taxable year beginning before January 1, 1978, such amount shall be allowable only for the taxpayer's first taxable year beginning in 1978.

(c) ADDITIONAL PERIOD TO RECTIFY CERTAIN EXCESS CONTRIBU

TIONS.

(1) GENERAL RULE.-Subsection (d) of section 408 (relating to tax treatment of distributions) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:

"(5) CERTAIN DISTRIBUTIONS OF EXCESS CONTRIBUTIONS AFTER

DUE DATE FOR TAXABLE YEAR.

“(A) IN GENERAL.-In the case of any individual, if the aggregate contributions (other than rollover contributions) paid for any taxable year to an individual retirement account or for an individual retirement annuity do not exceed $1,750, paragraph (1) shall not apply to the distribution of any such contribution to the extent that such contribution exceeds the amount allowable as a deduction under section 219 or 220 for the taxable year for which the contribution was paid

"(i) if such distribution is received after the date described in paragraph (4),

“(ii) but only to the extent that no deduction has been allowed under section 219 or 220 with respect to such excess contribution.

"(B) EXCESS ROLLOVER CONTRIBUTIONS ATTRIBUTABLE TO ERRONEOUS INFORMATION.—If

"(i) the taxpayer reasonably relies on information supplied pursuant to subtitle F for determining the amount of a rollover contribution, but

"(ii) such information was erroneous, subparagraph (A) shall be applied by increasing the dollar limit set forth therein by that portion of the excess contribution which was attributable to such information."

(2) EFFECTIVE DATE.—

(A) IN GENERAL.-The amendments made by paragraph (1) shall apply to distributions in taxable years beginning after December 31, 1975.

(B) TRANSITIONAL RULE.—In the case of contributions for taxable years beginning before January 1, 1978, paragraph (5) of section 408(d) of the Internal Revenue Code of 1954 shall be applied as if such paragraph did not contain any dollar limitation.