Sacha Blumen has proposed using superannuation for home deposits and was interested in how the US handles withdrawing money from the 401K which is the American equivalent of Superannuation. Tim Dunlop posted an entry on Blogocracy discussing Labor's policy for a first home buyer saving scheme. I do not like the first home grant at all and a separate saving scheme seems complex when most people already have a mandated default saving scheme in Superannuation. In the United States you can withdraw or borrow money from your 401k.
The 401K is named after the relevant section of the tax code and is one of several different tax advantageous ways to save. Others being the IRA and Roth IRA which either defer tax upfront or tax on removal/recovery. These make the process unnecessarily complex unfortunately. When I moved from being an employee to a consultant I had to roll over my 401K into a traditional IRA.
The 401K is done through their employer with a set percentage being taken out of an individuals paycheck and added to the 401K. Tax is deferred until the money is withdrawn from the 401k. Often, but not always, employers do matching contributions. 401K's are not compulsory either, they are optional, as is the level of contribution an employee and employer can make.
The penalties against withdrawing from the 401k are high to discourage people withdrawing money from the fund constantly. However the tax code defines hardship where penalties are waived or reduced. Hardships can include; buying a primary residence, avoiding foreclosure, tertiary education, medical expenses and a couple of others.
Since the 401k is employer guided, not all employers support those hardship clauses, though nearly all do. The amount withdrawn for hardship still comes under income tax for the individuals year of earning but there is no additional penalties such as the extra 10% tax for withdrawing prior to age 60.
Depending on the employer's plan the 401k can usually be borrowed against. There are limitations on the loan, such as it being a maximum of five years in length, but taking a loan against the 401k avoids the extra 10% tax penalty. It is intended to give short term access to the 401k money for emergencies. There are also tax penalties for not repaying the loan.
Prior to all the cheap credit of the last five years or so it was standard practice in the US to save up a down payment of 20% on a property as proof you could afford the loan as well as get better interest rates. My wife and I withdrew money from our 401k to buy our first place.
Superannuation should adopt the withdraw and borrowing aspects of the American 401k. It would be simpler than establishing new default savings accounts each time a party has a new policy.
