Trump’s new savings accounts for kids just went live last month, but they’re not the only interesting investment change in the mix this year.
With a new bipartisan bill known as the First-Time Homebuyer Empowerment Act, lawmakers want to allow first-time homebuyers to tap into a portion of their college savings accounts for a down payment. Colorado Democrat Michael Bennet and Ohio Republican Jon Husted introduced the bill in the Senate earlier this month. If passed, it could give some families looking to afford a home a big boost—but that’s a big if.
If it becomes law, the First-Time Homebuyer Empowerment Act would let anyone with a 529 education savings account transfer up to $35,000 out for a down payment on their first home, free of penalties. The special rule would apply to leftover savings in the accounts, which help families pay for college and related expenses. Usually any leftover cash in a 529 is restricted to educational uses like graduate school, trade school, or student loan payments.
Investment flexibility can be very useful, particularly if you’ve got money you need locked behind strict rules and steep fees designed to encourage investors to keep their cash growing in the long term. Like higher education is an investment, homeownership is an investment too—one that recent market moves have shown can build a ton of value over time. For families who can’t quite stretch to make a down payment possible, flexible proposals like this one might help fill in the financial gap.
The new proposal isn’t the only option of its kind. First-time homebuyers can withdraw up to $10,000 from an IRA for a down payment penalty-free, though taking money out of a retirement account can be a risky business because you lose out on future compounding interest forever. For families, each spouse could theoretically take out $10,000 one time for a total $20,000 down payment, but that amount is still less than the $35,000 proposed for 529 college savings plans.
Bipartisan interest in housing relief
A bill is far from a sure thing, even when bipartisan, but there does seem to be plenty of interest in making homeownership more affordable heading into midterm elections. “Across Colorado, too many young people and working families struggle to afford their first home,” Bennet said in a press release. “This bill would allow first-time homebuyers to use the savings they already have to cover a down payment and help put homeownership within reach.”
The Senate bill is the companion to a House version introduced earlier this year, where it is undergoing review in the House Ways and Means Committee. That bill similarly grew out of bipartisan cooperation, a sign that both parties are aware that Americans are hurting as they struggle to build families, buy homes, and secure employment in a recent environment of runaway inflation. Republican Representatives Tom Barrett, Tracey Mann, and Mark Alford partnered with California Democrat Lou Correa on the House version of the bill.
The First-Time Homebuyer Empowerment Act follows another recent bill designed to address the housing affordability crisis, the 21st Century ROAD to Housing Act. That bill, which became law in July, revises key federal housing programs and boosts the mortgage lending power of community banks, among other measures meant to ease the housing squeeze.
“I’m focused on helping working families get ahead and making life more affordable,” Husted said. “By freeing up existing resources, I’m proud this bipartisan bill gives first-time homebuyers another tool to use in pursuing their version of the American Dream.”