* 1255. Program requirements; first home savings account. 1. First home savings accounts established pursuant to the provisions of this article shall be governed by the provisions of this section.
2. A first home savings account may be opened by any person who desires to save money for the payment of the qualified first home purchase expenses of the account owner or designated beneficiary. An account owner may designate another person as successor owner of the account in the event of the death of the original account owner. Such person who opens an account or any successor owner shall be considered the account owner.
(a) An application for such account shall be in the form prescribed by the program and contain the following:
(i) the name, address and social security number or employer identification number of the account owner;
(ii) the designation of a designated beneficiary;
(iii) the name, address, and social security number of the designated beneficiary; and
(iv) such other information as the program may require.
(b) The comptroller and the corporation may establish a nominal fee for such application.
3. Any person, including the account owner, may make contributions to the account after the account is opened.
4. Contributions to accounts may be made only in cash.
5. An account owner may withdraw all or part of the balance from an account as authorized under rules governing the program. Such rules shall include provisions that will generally enable the determination as to whether a withdrawal is a nonqualified withdrawal or a qualified withdrawal.
6. (a) An account owner may change the designated beneficiary of an account in accordance with procedures established by the memorandum of understating pursuant to the provisions of section twelve hundred fifty-three of this article.
(b) An account owner may transfer all or a portion of an account to another first home savings account.
(c) Changes in designated beneficiaries and transfers under this subdivision shall not be permitted to the extent that they would cause all accounts for the same beneficiary to exceed the permitted aggregate maximum account balance.
7. The program shall provide separate accounting for each designated beneficiary.
8. No account owner or designated beneficiary of any account shall be permitted to direct the investment of any contributions to an account or the earnings thereon more than two times in any calendar year.
9. Neither an account owner nor a designated beneficiary may use an interest in an account as security for a loan. Any pledge of an interest in an account shall be of no force and effect.
10. The comptroller shall promulgate rules or regulations to prevent contributions on behalf of a designated beneficiary in excess of an amount that would cause the aggregate account balance for all accounts for a designated beneficiary to exceed a maximum account balance, as established from time to time by the comptroller.
11. Contributions to a first home savings account shall be limited to one hundred thousand dollars per account. This amount shall not take into consideration any gain or loss to the principal investment into the account.
12. In the event that an individual makes a "nonqualified withdrawal" of monies from the first home savings account such individual shall have the entire account taxed, including any interest, as though it was income at the account owner's federal tax rate in the tax years the monies were withdrawn, and incur an additional ten percent state penalty on the amount of earnings. In the event account owners or designated beneficiary does not use the qualified residential housing as a primary residence for a period of not less than two years after the purchase of such housing, the account owner shall have the entire account taxed, including any interest, as though it was ordinary income at the account owner's federal tax rate in the tax years the monies were withdrawn and incur an additional ten percent state penalty on the amount of earnings. For purposes of this article, the two year period shall begin at the time title is transferred to the first time home buyer. The penalty shall be in addition to any taxes due pursuant to a non-qualified withdrawal from a first home savings account.
13. Penalties may be waived by the commissioner if the individual can show proof that the reason the individual did not use the qualified residential housing as a primary residence for a period of two years or more after the purchase or construction was due to either:
(a) an employment relocation outside the state and such relocation required the individual to become a resident of another state;
(b) an unforeseeable emergency;
(c) an absence due to qualifying military service; or
(d) death.
For purposes of this subdivision, an "unforeseeable emergency" shall mean a severe financial hardship resulting from illness, accident or property loss to the account owner, or his or her dependents resulting in circumstances beyond their control. The circumstances that constitute an unforeseeable financial emergency will depend on the facts of each case, however, withdrawal of account funds may not be made, without penalty, to the extent that such hardship is or may be relieved by either:
(i) reimbursement or compensation by insurance or otherwise; or
(ii) liquidation of the individual's assets to the extent the liquidation of such assets would not itself cause severe financial hardship.
14. The commissioner and the comptroller are directed to promulgate all rules and regulations necessary to implement the provisions of this subsection and are hereby directed to establish, supervise and regulate first home savings accounts authorized to be created by this section.
15. (a) If there is any distribution from a first home savings account to any individual or for the benefit of any individual during a calendar year, such distribution shall be reported to the Internal Revenue Service and the account owner, the designated beneficiary, or the distributee to the extent required by federal law or regulation.
(b) Statements shall be provided to each account owner at least once each year within sixty days after the end of the twelve month period to which they relate. The statement shall identify the contributions made during a preceding twelve month period, the total contributions made to the account through the end of the period, the value of the account at the end of such period, distributions made during such period and any other information that the comptroller shall require to be reported to the account owner.
(c) Statements and information relating to accounts shall be prepared and filed to the extent required by federal and state tax laws.
16. An annual fee may be imposed upon the account owner for the maintenance of the account.
17. The program shall disclose the following information in writing to each account owner of a first home savings account:
(a) the terms and conditions for establishing a first home savings account;
(b) any restrictions on the substitution of beneficiaries;
(c) the person or entity entitled to terminate the first home savings agreement;
(d) the period of time during which a beneficiary may receive benefits under the first home savings agreement;
(e) the terms and conditions under which money may be wholly or partially withdrawn from the program, including, but not limited to, any reasonable charges and fees that may be imposed for withdrawal;
(f) the probable tax consequences associated with contributions to and distributions from accounts; and
(g) all other rights and obligations pursuant to first home savings agreements, and any other terms, conditions, and provisions deemed necessary and appropriate by the terms of the memorandum of understanding entered into pursuant to section twelve hundred fifty-three of this article.
18. First home savings agreements shall be subject to section fourteen-c of the banking law and the "truth-in-savings" regulations promulgated thereunder.
19. Nothing in this article or in any first home savings agreement entered into pursuant to this article shall be construed as a guarantee by the state that the account owner or designated beneficiary will qualify for the purchase of a home.
20. To establish that an account owner or designated beneficiary is a first time home buyer, the individual shall complete a form promulgated by the comptroller certifying, under the penalties of perjury, that such individual is a first time home buyer.
21. An individual must not intend to use any portion of the real property purchased using the first home savings account funds in a trade or business, or as a vacation home or as an investment, except as an owner occupied multiple dwelling with no more than two rental units.
22. Monies withdrawn from first home savings accounts and any interest which has accrued shall not be considered as taxable income to the account owner for state personal income taxation purposes, so long as the monies are applied for the purchase or construction of a qualified first home purchase by the account owner or designated beneficiary of the account.
* NB Effective June 16, 2018
Last modified: February 3, 2019