President Signs Technical Corrections Legislation; Vetoes Education IRA Increase

Washington, DC, July 24, 1998 - On Wednesday July 22, President Clinton signed the Internal Revenue Service Restructuring and Reform Act of 1998, H.R. 2676, into law. The technical corrections provisions that clarify certain Roth IRA, Education IRA, and qualified plan provisions of the Taxpayer Relief Act of 1997 ("TRA '97") are included in this legislation.

The general effective date for the technical corrections provisions is retroactive to the effective date of TRA '97, which is January 1, 1998. However, the provision clarifying that hardship distributions from 401(k) plans or other similar arrangements are not eligible rollover distributions and are not subject to the 20 percent withholding requirements is effective for distributions after December 31, 1998 (Section 6005(c)(2)(A)). The provision clarifying that deferred compensation is considered paid, for purposes of Section 404, when it is actually received by the employee is effective for taxable years ending after July 22, 1998 (Section 7001(a)). The Senate amendment clarifying that taxpayers taking minimum required distributions not include these required distributions in income for purposes of the $100,000 AGI limit for conversions is effective for taxable years after December 31, 2004 (Section 7004).

In addition, on July 21, 1998, the President vetoed the Education Savings and School Excellence Act of 1998, H.R. 2646. Among other provisions, this bill would have increased the Education IRA annual contribution limit from $500 to $2,000 and would have permitted the use of qualified distributions for kindergarten through 12th grade education expenses, i.e., private school. In his veto message, President Clinton characterized the bill as "bad education policy and bad tax policy."