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New Bill Would Allow Use of Retirement Funds to Purchase Foreclosures


A new bill aims to clear the growing foreclosure backlog by allowing buyers to dip into their retirement accounts without penalty.

The Housing Recovery Act of 2011, or H.R. 1526, would amend the IRS tax code so certain qualified retirement plan distributions could be used as down payment to purchase residences that have been in foreclosure for a year or more.

Typically, pulling funds out of an IRA, 401k, or similar retirement account prematurely would call for an early distribution penalty, but Florida Congressman (and real estate agent) Bill Posey (Rep) is hoping the IRS will waive it for the greater good.

Posey introduced the bill in the House last week, and it was referred to the Committee on Ways and Means.

Assuming it’s eventually enacted, it’ll come with a few requirements.

First, as mentioned earlier, the subject property must have been in foreclosure for a year or more.

Second, the retirement funds will need to be used within 120 days of the close of purchase.

And finally, the foreclosed property must be held for by the buyer for two years to avoid any early distribution penalties.

The provision appears to be aimed at promoting sustainable homeownership, rather than allowing investors to flip the properties while getting a tax break.

It seems like a decent idea, but probably won’t change the face of the ongoing housing crisis.

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