Bill Could Allow $35,000 Transfer from College Savings to Down Payment

A bipartisan bill introduced in the U.S. Senate could allow first-time homebuyers to tap into their college savings accounts for a down payment on a home. The First-Time Homebuyer Empowerment Act, introduced by Senators Michael Bennet (D-Colo.) and Jon Husted (R-Ohio), would permit penalty-free withdrawals of up to $35,000 from 529 education savings accounts for this purpose.

Currently, funds in 529 plans are designated for educational expenses like tuition and fees. While unused funds can be rolled into retirement accounts, this proposal would enable their use for a home purchase. The bill aims to address housing affordability challenges, particularly for those struggling to gather a down payment in the current market.

The legislation has garnered bipartisan support, reflecting a broader concern over rising housing costs and household financial strain. Proponents argue it provides a valuable tool for aspiring homeowners. The bill must still pass both chambers of Congress to become law.

Other measures to ease housing costs are also being considered. The recently enacted 21st Century ROAD to Housing Act modifies federal housing programs and enhances lending power for community banks. While individuals can currently withdraw up to $10,000 from an IRA penalty-free for a down payment, the proposed $35,000 limit for 529 plans represents a significant increase in flexibility.