H.R. 10944: Homeownership Opportunity Act

This bill would let people withdraw money from certain retirement accounts without counting that money as taxable income, if they use it to buy their first home or another principal residence. The goal is to make it easier for people to come up with cash for a down payment or closing costs.

What retirement accounts are covered

• Defined contribution plans, such as 401(k)-type plans

• 403(a) and 403(b) annuity plans, often used by schools, nonprofits, and some public-sector workers

• 457(b) deferred compensation plans, often used by certain government and tax-exempt employers

What the tax change would do

If a person takes money from one of these plans and uses it for a down payment or closing costs on a principal residence, that amount would not be included in their gross income for federal tax purposes. In plain terms, the person would generally not owe income tax on that withdrawal, as long as it meets the bill’s rules.

Limits on the amount

The tax-free treatment would be limited. For each taxable year, a person could exclude up to the greater of:

• $40,000, or

• 40% of the vested balance in the retirement account at the time of the distribution

The amount available would also be reduced by certain prior withdrawals that already received this special treatment under the bill or similar provisions.

Repaying the withdrawal

The bill would allow a person to put the withdrawn amount back into an eligible retirement account within three years after receiving it. That repayment would generally be treated like a rollover, subject to the bill’s conditions. For some account types, repayment would only be allowed if the person is otherwise eligible to contribute to that type of plan.

Special tax treatment under retirement plan rules

The bill would also make these withdrawals count as meeting certain retirement plan distribution rules, so that plans can allow the withdrawals without violating normal restrictions that often apply to taking money out before retirement age.

How long the rule would last

The special tax treatment would apply only to distributions made in taxable years beginning after December 31, 2025. It would stop applying to distributions in taxable years beginning after December 31, 2035.

Relevant Companies

None found