Page:United States Statutes at Large Volume 100 Part 3.djvu/666

 100 STAT. 2474

PUBLIC LAW 99-514—OCT. 22, 1986 individual retirement plan, the individual for whose benefit such plan was established."

(b) CONFORMING CHANGES TO TAX ON PREMATURE DISTRIBUTIONS FROM ANNUITY CONTRACTS; EXCEPTION FOR QUALIFIED FUNDING ASSETS.—

(1) INCREASE IN RATE.—Section 72(q) is amended—

(A) by striking out "5 percent" in paragraph (1) thereof and inserting in lieu thereof "10 percent", and (B) by striking out "5-PERCENT" in the heading thereof •'" and inserting in lieu thereof "10-PERCENT". (2) PERIODIC PAYMENTS.—Subparagraph (D) of section 72(q)(2) is amended to read as follows: "(D) which is a part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his beneficiary." (3) ADDITIONAL TAX.—Section 72(q) is amended by adding at the end thereof the following new paragraph: "(3) CHANGE IN SUBSTANTIALLY EQUAL PAYMENTS.—If—

"(A) paragraph (1) does not apply to a distribution by j:\\ reason of paragraph (2)(D), and lo "(B) the series of payments under such paragraph are au subsequently modified (other than by reason of death or disability)— "(i) before the close of the 5-year period beginning on the date of the first payment and after the employee attains age 59y2, or "(ii) before the employee attains age 59y2, the taxpayer's tax for the 1st taxable year in which such modification occurs shall be increased by an amount, deter mined under regulations, equal to the tax which (but for para graph (2)(D)) would have been imposed, plus interest for the deferral period (within the meaning of subsection (t)(4)(B))." (3) Paragraph (2) of section 72(q) is amended by striking out "This subsection" and inserting in lieu thereof "Paragraph (1)". — (4) Section 72(q)(2), as amended by this Act, is amended by striking out "or" at the end of subparagraph (G), by striking out the period at the end of subparagraph (H), and by adding at the end thereof the following new subparagraphs: "(I) under an immediate annuity contract (within the meaning of section 72(u)(4)), or "(J) which is purchased by an employer upon the termi|. nation of a plan described in section 401(a) or 403(a) and which is held by the employer until such time as the employee separates from service." _. (c) AMENDMENTS TO SECTION 403(b).—

(1) IN GENERAL.—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: "(11) REQUIREMENT THAT DISTRIBUTIONS NOT BEGIN BEFORE AGE 59Vs, S E P A R A T I O N FROM SERVICE, DEATH, OR DISABILITY.—This

subsection shall not apply to any annuity contract unless under such contract distributions attributable to contributions made pursuant to a salary reduction agreement (within the meaning of section 402(g)(3)(C)) may be paid only—

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