Penalty for Withdrawal for Purpose Other Than Eligible Costs. Except as otherwise provided in this section, if the account holder withdraws any funds from a first-time and second chance home buyer savings account for a purpose other than eligible costs for the purchase of a single-family residence in this state, the following shall apply:
(1) The entire balance of the fund, including interest and other income on principal, shall be included in the account holder's taxable income for the tax year in which the withdrawal was made.
(2) The account holder shall pay a penalty to the Department of Revenue equal to 10 percent of the amount withdrawn. The penalty shall not apply to funds withdrawn from an account which were:
a. Withdrawn by reason of the account holder's death or disability or due to unemployment after the account holder has exhausted his or her applicable unemployment compensation benefits.
b. A disbursement of assets of the account pursuant to a filing for protection under the United States Bankruptcy Code, 11 U.S.C. § 101 et seq.
(3) Subdivisions (1) and (2) do not apply to funds withdrawn or distributed from a first-time and second chance home buyer savings account that within 60 days of their withdrawal or distribution are deposited in full into another first-time and second chance home buyer savings account. This subdivision shall apply both to transfers between any qualifying first-time and second chance home buyer savings accounts whether such transfers are to or from qualifying individual or joint accounts. The timely transfer of funds from a first-time and second chance home buyer savings account to another first-time and second chance home buyer savings account in accordance with this subdivision shall not alter the time limitations set forth in subsection (e) of Section 7.