New Savings Option Available For Missourians Seeking First Homes

State law allows first-time home buyers to create tax-advantaged savings accounts

The best moments for bankers are those that involve helping customers achieve their dreams. This is especially true for assisting individuals with buying houses, and a new program offers banks the opportunity to help first-time home buyers save for their future homes. 

home buyersThe Missouri REALTORS Association recently kicked off its “Missouri First-Time Home Buyer Savings Account” campaign. Under this program, any Missouri resident or married couple can open an account in any Missouri bank and self-designate it as a first-time home buyer savings account.

House Bill 1796 enacted in 2018 by the Missouri General Assembly allowed Missourians to create these tax-advantaged savings accounts. 

“First-time home buyer savings accounts can be opened with any bank doing business in Missouri,” said Keith Thornburg, general counsel of the Missouri Bankers Association. “The law does not impose any reporting or tracking requirements on the bank, and it expressly prohibits requirements being placed on financial institutions.” 

Under the law that was effective Jan. 1, 2019, an individual or couple opening a first-time home buyer savings account can designate themselves or another person as the qualified beneficiary — a first-time home buyer for whose eligible expenses the money in the account can be used. The account owner can claim a Missouri income tax deduction for 50 percent of the amount deposited to the account. An individual can contribute and deposit up to $1,600 annually, and a couple filing a joint tax return can contribute and deposit up to $3,200 annually. Interest paid on the accounts is exempt from Missouri individual income tax.

“The Missouri Department of Revenue has authority to issue regulations and tax forms for the program,” Thornburg said. “Currently, MBA is not aware that the Department of Revenue has done so.”

The first-time home buyer accounts are subject to annual contribution limits. Individuals can open more than one account and can have different first-time home buyers as qualified beneficiaries for those accounts, and the account holder can change the beneficiaries of any account. As such, it appears a person could be a beneficiary of more than one account. It is possible that several individuals, such as parents or grandparents, could establish accounts to benefit their children or grandchildren who qualify as first-time home buyers.

Thornburg said banks can choose to market their traditional savings account program to individuals seeking to open a first-time home buyers savings account, and banks may even provide a new account form for these savings accounts. However, the law does not require banks to offer any special terms or programs for a first-time home buyer savings account.

“It is conceivable that a customer or new customer could open a savings account in your bank and simply self-designate the account as a first-time home buyer savings account, and the bank would have no knowledge that the account is being used for the program,” Thornburg said. “Again, it is the responsibility of the account holder to assemble and maintain all documentation of deposits and expenditures in the account to qualify for the Missouri tax benefits.”

To obtain and keep the tax benefits of the Missouri First-Time Home Buyer program, the savings account holder is responsible for documenting compliance with the program to ensure that the account deposits and interest are used for qualified purposes. 

Thornburg recommends banks that elect to establish a formal first-time home buyer savings account program or know that a customer intends to designate an account for this purpose should recommend the use of a new and separate account.

“This will be convenient for the account holder in documenting the purpose and beneficiary for each first-time home buyer savings account, and it should discourage commingling of other funds with the account,” he said. “This also should facilitate tracking of exempt interest or investment earnings via a customer’s bank statement.” 

The account holder is not required to name a pay on death beneficiary and is not limited in naming a POD. However, it is advisable that the account holder(s) designate a pay on death beneficiary for a first-time home buyer savings account. If the account holder or joint holders die and there is no POD, the law provides for a “recapture” of the tax benefits of the account. 

“The account holder or joint holders should name a POD beneficiary to minimize the risk of a recapture of tax benefits and to better ensure that the account proceeds will benefit first-time home buyers in the event of the death of the account holder(s),” Thornburg said. 

The uses of account proceeds are restricted to the first-time home buyer program in order for the account holder to claim and to avoid forfeiting the tax deductions and interest exemption. Account fees, however, are expressly permitted to be paid from a first-time home buyer account. Whether standard bank fees may apply or a bank establishes a designated program for first-time home buyer accounts, bank service fees are permitted to be paid from or charged to a first-time home buyer account. As always, banks must comply with the federal Truth-in-Savings Act with respect to account terms and disclosures.

Because the law does not provide creditor protection, the funds in a first-time home buyer account likely can be attached by a creditor of the account holder or even offset against a debt owed to a financial institution. 

“If a customer asks about asset protection planning for a first-time home buyer savings account, you should advise the customer to seek the advice of a wealth planning attorney,” Thornburg said.

MBA recommends that every bank review the statutes enacted by House Bill 1796 to become familiar with the program and how your bank will respond to questions from customers, new customers or realtors asking about your bank’s program. Your bank may establish a program you wish to promote, perhaps in conjunction with your bank’s home lending programs. This could include designing and implementing a savings, time or investment account with unique features. You may choose not to promote the program but express your willingness to open an account product in any of your standard offerings for any person, including a person who will use the account as a first-time home buyer savings account. 

published in The Missouri Banker
February 2019