If it wasn't already clear that most politicians don't have the foggiest idea about how to set up decisions that are financially responsible, the state of Georgia recently had an act proposed that shows how far out of touch politics is from real business.
Senator Johnny Isakson and Representative Tom Graves introduced the HOME Act which would permit Americans to withdraw retirement funds from the 401(k) to make mortgage payments tax free. The long title is the "Hardship Outlays to Protect Mortgagee Equity Act of 2011". (source: www.examiner.com)
The Act calls for allowing the withdrawals to make "qualified mortgage payments" on "qualified primary residences" within 120 days after the withdrawal from the retirement account is made. It allows for a lifetime maximum withdrawal, referred to as distributions, of $50,000 from the account and would only cover the tax year beginning in the year in which the Act is signed into law.
What???? This is just another example of a not well thought out band aid approach to get people to find some money to pay that mortgage they probably couldn't afford in the first place. Withdrawing money (tax-free or not) from your 401(k) plan to make mortgage payments is simply NOT a good idea - period! The idea of a 401(k) is have a long-term tax-deferred retirement account. This being an account designed to help you recreate your paycheck when you longer have one. Allowing people a crutch to gain access to this money early to pay their mortgage payment will only put people into a further delusional state that their real estate will double or triple over the next ten to fifteen years.
Neither the House nor the Senate has scheduled a vote on the proposed Act so if you are interested in more about it or seeing it rejected, place a call to your Senator and/or Representative. Although the legislators are from Georgia this is a national law that would affect all Americans with a qualified primary residence and qualified mortgage - terms yet undefined within the Act. (source: www.examiner.com)
At some point, the nonsense has to stop. And that is exactly what this act is . . . nonsense.
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Written by:
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
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