First-Time Home Buyer Empowerment Act

Use 529 savings for first home

If enacted, the bill would let a portion of a 529 plan distribution be tax-free when used to buy a designated beneficiary's first principal residence. The account must have been kept at least 15 years and the amount must come from contributions (and earnings on them) made before the 5-year period ending on the withdrawal. The tax-free rule applies only to amounts used within 60 days to buy the home and is capped at a $35,000 aggregate limit per beneficiary (this cap counts prior years and is reduced by certain Roth IRA rollovers for that beneficiary). If a purchase is delayed or canceled, you could recontribute the money to a 529 or ABLE account within 120 days instead of 60 days, with special counting rules. If you sell or stop using the house as your main home within five years, your tax for the year of that event would increase by the tax that would have applied plus interest, reduced by 20% for each full year you kept the home. The rule would apply to distributions made in taxable years beginning after the date of enactment.