In 2025, H.R.1 made several changes to federal tax law that will take effect for 2026. One of the most significant changes was a new exemption for early withdrawal from an IRA or retirement account to pay for expenses related to the birth or adoption of a child. Under this new provision, each parent may withdraw up to $5,000 per child from an IRA or retirement account without paying the federal 10% early withdrawal penalty. Additionally, the federal exemption applies to first-time homebuyers by allowing withdrawals of up to $10,000 without penalty.
Pennsylvania tax laws often follow federal rules but do not for these early withdrawals, which are still subject to the state personal income tax even when they meet federal exemption requirements. Therefore, my legislation would exempt from the state income tax all early withdrawals from retirement accounts that qualify for the birth or adoption of a child or for a first-time homebuyer that also meet the federal exemptions.
We need to take this opportunity to further help young families and first-time homebuyers and stimulate Pennsylvania's economy by lowering costs on families, encouraging population growth, supporting first-time homeownership, and helping make Pennsylvania more competitive with neighboring states. Please join me in supporting this initiative by co-sponsoring this legislation