Groom principal and retirement, executive compensation, and tax practice leader, Rosie Zaklad, commented on the Trump administration’s proposal to allow U.S. home buyers to withdraw funds penalty-free from their 401(k) retirement plans and/or 529 college savings plans for a down payment on a home purchase. The planadvisor article, “Trump ‘Not a Huge Fan’ of Homebuyers Using 401(k), 529 Savings Without Penalties,” and the PLANSPONSOR article, “Trump Backs Off From Reported Plan to Let Homebuyers Tap 401(k)s, 529s,” report that Trump is not supportive of his administration’s proposal to allow such withdrawals from tax-favored accounts. In these articles, Zaklad weighs in on certain issues raised by this proposal.
Among the complexities discussed in these articles is the possibility of increased “leakage” from long-term savings that could result from allowing withdrawals from 401(k)s and 529s for home purchases. These discussions note the limited, well-defined circumstances under which the current rules allow for early access to IRA and 401(k) retirement funds through penalty-free withdrawals or loans. Commenting on these exceptions in the context of this home purchase proposal, Zaklad observed, “’With loans, at least you’re paying yourself back. Whereas withdrawal—once it’s gone, you can’t put the money back.’”
The article notes that the administration may try to expand access to 529 plan funds through existing regulatory authority, rather than seeking congressional approval. Addressing that possible course of action, Zaklad stated, “‘I don’t understand how you would create a new penalty-free distribution without passing a new law,’ . . . . ‘But if there is something, they’ll figure out a way to do it.’”
To read the planadvisor article, click here.
To read the PLANSPONSOR article, click here.
