Ok I’m a single male, single income, no kids, living at home. Heard part of an H&R block commercial with a dude joyously proclaiming “he showed me how to save on my taxes by putting money into an XYZ plan to save for buying a house”.
What is the XYZ plan called, and anyone have information on it? Thanks.
You can get a good start on saving for a house by not believing everything you hear in commercials.
Any chance that he was referring to putting money away in a 401(k) and then withdrawing money to pay for a first home purchase? IIRC you aren’t subject to the same penalties that you would otherwise get hit with for taking money out before age 59 (or whenever it is).
There are some pretty nice tax breaks once you have actually BOUGHT the home (interest on the mortgage, property taxes, part of the closing costs and so on are all tax deductible).
Consult your tax attorney for exact rules 
Just a WAG but an express IRA?
If you’re Canadian you can put money in a RRSP (registered retirement savings plan). $20K per person per couple is allowed to be used for your first home.
The only ‘catch’ is that you have 15 years to reinvest it back into your RRSP or be taxed on what’s left.
They were likely referring to an IRA. While you can typically withdrawal funds from an employer sponsored plan like a 401(k) to purchase a principal residence, you get socked with a 10% excise tax on the withdrawal if you haven’t reached age 59.5.
Certain withdrawals from IRAs are exempt from the excise tax. You have to be a first time home buyer to qualify though. Here’s a short article from the Motley Fool folks on the subject.
Withdrawals for medical expenses and higher education expenses also can be exempt from the penalty.
You still have to pay the penalties and taxes even if you take out the money in order to buy a home. No freebies just because it’s for your house.
I saw that H&R Block commercial too and could not figure out what on earth they might be referring to. The only thing I can think of is that they are advising people to put money into a 401K or other tax-deferred retirement plan and then to take a loan out, which is not that great “advice” either.
One other thing I wanted to add. I realize that you’re probably paraphrasing the ad, but if this is what was said, it is somewhat misleading. By making an IRA deposit, you can reduce your tax bill for THIS year. That’s certainly true. Those amounts are going to be taxable and treated as ordinary income in the year they are withdrawn though. At best, all you are doing is deferring the taxability of the income until the year you buy the house. In general, if you can defer paying taxes on some of your income, that’s good. Keep in mind though that you are going to have a larger tax bill the year you buy the house. That might not be such a good thing.