HR 5623 - Home buyer tax credit extension till Oct. 2010 likely !

H.R. 5623 and tax credit extension

H.R. 5623 is a bill which the Congress has come up with extend the Home buyer tax credit by further 90 days (till 01 October 2010) and consequently stop the further deterioration of the housing market in United States. For details of the bill visit Tax credit extension - October 2010. This bill has indeed been passed by the house - read US House backs 2010 tax credit extension. It has to be still passed by the senate. However, it is expected to be passed by the Senate today.

H.R. 5623: Homebuyer Assistance and Improvement Act - Legislative Digest - GOP.gov

H.R. 5623 would extend the home-buyer tax credit of up to $8,000 for the purchase of a principal residence before October 1, 2010. The current benefits apply to cover buyers who enter into contracts before April 30 and close by June 30. This bill would extend the closing date to September 30, 2010.

The bill would provide any home-buyer who entered into a contract on a home by April 30, 2010, but have been unable to go to closing within the required 60 days; the provision would extend the closing date for an additional 90 days. This provision is estimated to cost $140 million.
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For knowing more about the Home buyer tax credit, read my detailed post on Tax credit and its extension.

Federal Tax Breaks, IRS Tax Credits, Tax Rebates in 2009 Economic Stimulus Package that maybe of interest to you H.R. 5623 - Extension of Housing Tax credit to October 2010. Cash for Clunkers - Is it Useful? Will there be a Second Stimulus Plan in 2009 or 2010? 2009 Obama Stimulus Package details explained. New Car Purchase Auto Stimulus details explained- Excise and Sales Tax deduction for new purchase of new vehicles. Cars- Cash for Clunkers - Car tax credit when you trade your old fuel inefficient car for a new one and get a rebate of $3500 or $4500. $8000 First Time Home Buyer Tax Credit details- 2009 Housing Stimulus Bill in Economic Plan proposed by Obama. $800 Making work pay tax credit stimulus- details explained ($400 working tax credit for individuals and $800 tax credit for married taxpayers). $250 Social Security Stimulus Check in 2009 Economic Stimulus Package. 2009 Cobra Stimulus Package 65% Reduction in Cobra Health Insurance Premium for qualifying individuals. 2009 Stimulus Checks? Economic Stimulus Payment $1000 Child Tax Credit, Dependent Tax Credit 2009 extension. FAQ: Can you claim your $8000 first time home buyer tax credit in 2008 tax return itself or do you have to wait till you file 2009 tax return? The law allows any qualified purchases made in 2009 to be treated as if the purchase was made on December 31 2008. You can claim the $8000 first time home buyer tax credit in 2008 tax return itself by filing form 5405 according to the latest IRS ruling. Thus you can get the benefit of $8000 in 2008 tax return itself. Income Tax tip for first time home-buyers: If you know you qualify for the $8000 home buyer credit there is no need to wait to file your 2009 tax return in order to get benefit of this housing stimulus. First time home buyers are actually permitted to reduce their income tax withholding by the amount equal to housing credit, i.e. $8000. You can then use this 'extra cash' got by increase in your take home pay for down-payment. Quick Answers to common queries: Question: When will the $8000 home buyer tax credit end? Answer: April 30, 2010 for general public and April 30 2011 for Government employees in Military, Foreign Service and Intelligence Community. Question: Can I purchase a house from my parents or relative and still qualify for the tax credit? Answer: No. please read the 7 important points in detail. Question: I am married and filing separately and I have not owned a principal residence in last three years. Do I qualify? Answer: For married people, whether filing jointly or separately, both the partners have to be 'first time home buyers' according to the definition mentioned in 7 important points.

401(k) Rules explained - Tax, Withdrawals, Loans, Rollovers, limits

What is 401(k) retirement savings plan ?

401(k) is a retirement savings plan for a working individual in United States of America. 401(k) plans are sponsored by your employer. In this post you will find out a quick overview of the rules and regulations and the most important things you need to know about 401(k) investments.

401(k) investment options

Money contributed to 401(k) plans is invested in various mutual funds investing in Stocks, Bonds or Money market investments. There are two types of 401(k) plans based on who has control on how the money is invested.

1. Participant-directed 401k plans - These are plans in which as an employee you can choose how much portion of your money is invested in which particular financial instrument. Most 401k plans are of this type.
   
2. Trustee-directed 401k plans- choice of investment options is made by the employer.

It is best to find out from your employer if your plan is indeed of the first type (the most common category).

401(k) tax exemption rules

It is important to understand the tax consequences of your 401(k) contributions. The key points to remember are:

1. Investments in 401(k) plans are tax deferred. i.e. you do not pay income tax on your 401(k) contributions (at the time of the contribution), but you pay tax at the time of withdrawal.
2. The returns on your 401(k) are tax-exempt : You earn from your 401(k) investments in the form of interest or dividend or capital gains. The biggest advantage of 401(k) retirement plans is that these earnings are not taxable.

401(k) rules for early withdrawals

1. Pay income tax on 401(k) withdrawals: As explained above in 401(k) tax rules, you have to pay tax on the 401(k) withdrawal amount when you withdraw money.
   
2. 401(k) hardship withdrawals: Many employers allow 401(k) withdrawals only if there is a financial hardship, e.g. 1) pay medical expenses, 2) pay college tuition fees, 3) for payment or installments etc. in order to avoid eviction or foreclosure of primary residence 4) for funeral of a family member. What exactly qualifies as financial hardship for the case of 401(k) withdrawals is decided by your employer usually based on predetermined criterion.
   
3. 10% Excise tax for premature 401(k) withdrawals: Withdrawals from your 401(k) account before you turn 59.5 years old and (while you are still in service of the company) involves a penalty in the form of 10% excise tax on the withdrawal amount. Note that this excise tax is in addition to the income tax you pay on the invested amount. However you do not have to pay this 10% excise tax in the case when you are leaving your company after you are 55 years old or if you become disabled.
   

401(k) rules for loans

Although direct withdrawals from 401(k) involve a penalty, several (but not all) 401(k) plans allow you to take a loan on your 401(k) contributions at a predetermined interest rates. The 401(k) rules for taking loan (if it is allowed) are as follows.

1. The amount of loan you can avail is the minimum of 50% of your 401(k) balance or $50,000.
2. The 401(k) loan has to be repaid in 5 years, unless it is meant for purchase of a primary residence.
3. In case you take a 401(k) loan and decide to quit your job, you may have to pay back the outstanding loan balance in full. Otherwise the outstanding balance may be treated as a premature 401(k) withdrawal and maybe subject to 10% excise tax as mention above.

401(k) maximum limit rules and regulations

There is a maximum limit on the amount you can invest in all 401(k) plans in a given year and it is the minimum of the following two:

1. The maximum percentage of contribution limit set by your employer.
2. The maximum 401(k) limit as prescribed by the federal government. The 2010 401(k) maximum contribution limit is $16,500 for employees below the age of 50 years and $5,500 for employees over the age of 50.

401(k) Rollover rules and options

You have the following options to deal with 401k contributions in case you retire, quit or change your job and do not want to leave your 401(k) assets with your former employer.

1. 401(k) Rollover Option 1: You can choose to rollover your entire 401(k) contribution to an IRA account, which you will have to setup before the rollover.
   
2. 401(k) Rollover Option 2: You may be able to make a rollover of your 401(k) assets to a retirement savings plan offered by your new employer (which could be another 401(k)).
3. 401(k) Rollover Option 3: You can choose to receive all your 401(k) assets, without making a rollover. However, remember that you will have to pay income tax according to 401(k) tax rules mentioned above. Moreover it is mandatory for your employer to withhold 20% on the amount of your 401(k) withdrawal for Federal Income tax. You are supposed to pay the remaining tax (after this 20% withholding) when you file your income tax return. In addition to the income tax, you also have to pay 10% excise tax if your age is below 59.5 years (as mentioned in 401(k) early withdrawal rules).
   

401(k)- additional benefits like matched contributions

Several employers, as part of their pay-package, match the contributions in 401(k) account. I.e. if you invest $1000, your employer will invest an additional $1000 on your behalf, thus doubling your investment. It is worth finding out if indeed your employer matches you 401(k) contribution by directly asking your employer.

External useful links related to 401(k) contributions IRS 401(k) plan What is Roth 401(k) plan? Additional details on 401(k) withdrawals Learn more about IRA - Individual Retirement Arrangements from IRS website. Income limits on Roth IRA contributions 401(k) fidelity - Fidelity Personal workplace and Investing is the largest provider of 401(k) plans in USA. Other posts related to Tax breaks, tax deductions and tax credits that you may find useful. New Car Purchase Auto Stimulus details explained- Excise and Sales Tax deduction for new purchase of new vehicles. Cars- Cash for Clunkers - Car tax credit when you trade your old fuel inefficient car for a new one and get a rebate of $3500 or $4500. $8000 First Time Home Buyer Tax Credit details- 2009 Housing Stimulus Bill in Economic Plan proposed by Obama. $800 Making work pay tax credit stimulus- details explained ($400 working tax credit for individuals and $800 tax credit for married taxpayers). $250 Social Security Stimulus Check in 2009 Economic Stimulus Package. 2009 Cobra Stimulus Package 65% Reduction in Cobra Health Insurance Premium for qualifying individuals. 2009 Stimulus Checks? Economic Stimulus Payment $1000 Child Tax Credit, Dependent Tax Credit 2009 extension. Disclaimer The author of this web page is neither a legal consultant nor a tax professional. This article on 401(k) retirement savings plan is meant only as a general outline and may contain inaccuracies or errors.