Bill would permit penalty-free withdrawals to make mortgage payments
November 5, 2011 by N/A
Legislation introduced in the Senate (S. 1656) by Sen. Johnny Isakson (R-GA) would allow taxpayers under certain conditions to make penalty-free withdrawals from their retirement accounts to pay mortgage payments with respect to their principal residence. In addition, the bill would also make conforming modifications to the rules governing hardship distributions. A companion measure was introduced in the House by Rep. Tom Graves (R-GA).
The Hardship Outlays to protect Mortgagee Equity (HOME) Act would permit penalty-free distributions from a qualified retirement plan to make mortgage payments toward a taxpayer’s primary residence, subject to a lifetime cap of $50,000 or one-half of the present value of the nonforfeitable accrued benefit of the individual under the plan (whichever is smaller), so long as those funds are used for that purpose within 120 days of withdrawal.
CCH Note: “Qualified retirement plans” as defined under the bill would include plans qualified under Code Sec. 401(a), qualified annuities, tax-sheltered annuities, and IRAs. However, the clear purpose of the legislation is to ease access to 401(k) plan accounts to make mortgage payments.
Bill designed to prevent foreclosures
“This bill will help Americans who risk foreclosure use their own resources to make their mortgage payment on time without being penalized by the federal government,” Sen. Isakson said in a press release. “I firmly believe that economic recovery in this country will not occur until the housing market bounces back. To that end, this legislation will help strengthen the American housing market because it will lead to a reduction in foreclosures and in turn will help stabilize home values.”
Rep. Graves noted that, under current tax law, Americans “who have been responsible enough to save for retirement in the past” cannot withdraw retirement funds to pay for their homes without paying a 10% penalty tax to the IRS. “This legislation,” he said, “will simply place taxpayers who have saved responsibly on the same level as those who have not, all the while reducing foreclosures, eliminating red tape, and accomplishing a goal that all Members of Congress can support – keeping Americans in their homes.”
Source: S. 1656.
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