The New Savings Account You’ll Want to Know About If You’re Trying to Buy a Home
It’s no secret that young people are struggling to buy homes, thanks to high prices and crippling student loan debt. State governments have started to take notice — and want to help.
Tax-advantaged savings accounts specifically to help future homeowners are now available in six states: Colorado, Iowa, Minnesota, Mississippi, Montana and Virginia. These accounts offer a tax break on the money people save toward down payments and other home buying-related expenses, like closing costs.
The accounts differ by state: Some give participants a tax break on their contributions, some on the interest earned, and others — as is the case with Mississippi — on both.
As with other tax-advantaged savings accounts, like a 401(k), there’s typically a cap for how much you can contribute in a year, as well as a penalty if you withdraw funds for any non-home buying-related expenses.
The initiative is aimed at first-time home buyers and those trying to bounce back from the recession, with eligibility varying by state.
Most of these are basic savings accounts, which means interest would be pretty low (that’s disappointing if your state only gives you a tax break on interest), but some states allow participants to put their savings in brokerage or investment accounts.
Didn’t see your state on the list? It soon could be. New York Legislature passed a similar measure earlier this year, which is currently awaiting action from the governor. And Alabama, Louisiana, Michigan, Missouri and Pennsylvania could be some of the next, according to the New York Times.