First Time Homeowner Savings Plan Act
This bill, the First Time Homeowner Savings Plan Act, would increase the amount that can be withdrawn from retirement accounts without the 10% early-withdrawal penalty if the distribution is for a first-time home purchase. Specifically, it raises the penalty-free limit from $10,000 to $25,000 and adds a mechanism to adjust that amount for inflation after 2026. The inflation adjustment uses the standard cost-of-living adjustment (COLA) formula and must be rounded to the nearest $100. The changes apply to distributions made around December 31, 2025, in taxable years ending after that date. The policy aims to make it easier for first-time homebuyers to access retirement funds without penalty, while taxes on the distribution (as ordinary income) generally still apply.
Key Points
- 1Increased penalty-free limit: The first-time homebuyer distribution limit is raised from $10,000 to $25,000 for distributions from IRAs and other qualified retirement plans.
- 2Inflation adjustment: Starting in future years (taxable years beginning after 2026), the $25,000 amount will be adjusted annually for cost-of-living increases, using the IRS COLA framework and rounding to the nearest $100.
- 3Effective date: The amendments apply to distributions made on December 31, 2025, in taxable years ending after that date.
- 4Tax treatment remains: Like current law, the distribution would be penalty-free from the 10% early-withdrawal tax, but it is not exempt from ordinary income tax.
- 5Coverage and scope: Applies to “first-time homebuyer distributions” from “individual retirement plans,” which include IRAs and other qualified retirement plans.