H.R. 1526: Buy A Foreclosure With Your Roth IRAs and 401ks

On April 13, 2011, while our nation and its elected Representatives were reeling from the effects of an overdose of  passing a 2011 Budget compromise, an enterprising Congressman - Bill Posey - from Rockledge, Florida submitted bill (H.R.1526 — Housing Recovery Act of 2011) to Congress.  The proposed law would allow buyers to use funds (a distribution) from their 401(K)s and IRAs to buy foreclosed homes that have been foreclosed for a year or more.   Caveat: this legislation has not been ratified and signed, so no victory lap - yet.  However, the Bill has been sent to  the Committee on Ways and Means for review, comment, sword-fighting, bickering, and name calling.  Let's hope it survives the Committee and makes it onto the floor for a vote. 

The key features of the bill are:

• H.R. 1526 would waive early distribution penalties on certain qualified retirement plans if the funds are used to buy a house that has been in foreclosure for a year or more.
• H.R. 1526 would allow early distributions from ROTH (IRAs) and 401Ks.
• The funds would then be used for buying a property that could not be ‘flipped’ (or sold) for 24 months.

Who wins if this Bill passes? :

• People who would like to buy a foreclosed property to live in at today's discounted prices, but who can't take the money out of their 401(K)s or ROTH IRAs without paying a penalty.
• Blighted neighborhoods with vacant, boarded up, and abandoned homes devaluing every day, and
• lenders that are stuck with toxic assets on their books and that are continuing to hold them on their books for fear of devaluing the properties more by "dumping them on the market".

 Here is the actual bill:

H.R.1526 — Housing Recovery Act of 2011 (Introduced in House – IH)

HR 1526 IH

112th CONGRESS

1st Session

 

H. R. 1526

To amend the Internal Revenue Code of 1986 to except from the early distribution penalty certain qualified retirement plan distributions used to purchase a residence that has been in foreclosure for a year or more.

 

IN THE HOUSE OF REPRESENTATIVES

April 13, 2011

Mr. POSEY introduced the following bill; which was referred to the Committee on Ways and Means

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A BILL

To amend the Internal Revenue Code of 1986 to except from the early distribution penalty certain qualified retirement plan distributions used to purchase a residence that has been in foreclosure for a year or more.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Housing Recovery Act of 2011'.

SEC. 2. EXCEPTION TO EARLY DISTRIBUTION PENALTY FOR DISTRIBUTION TO BUY A RESIDENCE IN FORECLOSURE.

(a) In General- Paragraph (2) of section 72(t) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

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    `(H) HOME FORECLOSURE DISTRIBUTION-

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      `(i) IN GENERAL- Any distribution to an individual to the extent such distribution is used by the individual before the close of the 120th day after the day on which such distribution is received to pay the cost of acquiring (within the meaning of paragraph (8)(C)) a residence which has been in foreclosure for the entire 1-year period ending on the date of such acquisition.

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      `(ii) REQUIRED 2-YEAR HOLDING PERIOD- If during the 2 year-period beginning on the date of such acquisition the individual disposes of such residence, then the individual shall be treated as having distributed from a qualified retirement plan the amount to which clause (i) applied with respect to such residence in the taxable year of such disposition.

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      `(iii) INTEREST- Any increase in tax under paragraph (1) by reason of clause (ii) shall include interest at the underpayment rate established under section 6621 on such increase for the period beginning on the due date for filing the return for the taxable year for which clause (i) applied with respect to such residence.’.

(b) Conforming Amendment- Clause (i) of section 401(k)(2)(B) of such Code is amended by striking `or’ at the end of subclause (IV), by striking `and’ at the end of subclause (V) and inserting `or’, and by inserting after subclause (V) the following new subclause:

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        `(VI) as provided in section 72(t)(2)(H), and’.

(c) Effective Date- The amendment made by this section shall apply to distributions made after the date of the enactment of this Act.