Could tapping into 401(k) accounts for down payments make it even more challenging to save for retirement?

Main Points to Remember

• An advisor from the Trump administration recently suggested a policy that would let individuals use their 401(k) savings to help with home down payments.
• Despite this, Trump stated last week that he does not strongly support early 401(k) withdrawals, especially since many Americans have seen their retirement accounts grow in value.
• Financial professionals caution that taking money out of a 401(k) before retirement can significantly reduce your long-term savings, even if it helps you purchase a home.

As federal officials explore ways to make homeownership more accessible, a Trump administration representative proposed making it simpler for buyers to use retirement funds for down payments.

But is this approach wise?

Kevin Hassett, who leads the National Economic Council, mentioned on Fox Business on January 16 that the administration was considering a plan to permit Americans to withdraw from their 401(k) accounts for home down payments. He indicated that President Trump would announce further details at Davos. However, after the World Economic Forum, President Trump expressed reservations about the idea.

“One reason I’m hesitant is that 401(k) accounts are performing exceptionally well,” Trump commented while aboard Air Force One last Thursday.

Many retirement savers have benefited from strong market growth in recent years. For example, in 2025, the S&P 500 rose nearly 18% and has delivered over 90% returns since October 2022.

Meanwhile, the housing market’s gains have been more modest. As of October 2025, the S&P CoreLogic Case-Shiller U.S. National Home Price Index increased by just 1.4% year-over-year, though some cities saw higher growth.

With mortgage rates remaining above 6% and many homeowners reluctant to sell due to low rates secured during the pandemic, entering the housing market remains challenging.

Details of Hassett’s Suggestion

Currently, Americans can access their 401(k) savings before age 59½, but such withdrawals usually incur both income taxes and a 10% penalty. Hassett’s proposal would likely allow withdrawals for home down payments before age 59½ without the 10% early withdrawal penalty.

Another option is to take a 401(k) loan, but these must typically be repaid within five years. Not all plans offer loans, and you can generally borrow up to 50% of your account balance or $50,000, whichever is less.

Most financial advisors recommend against early 401(k) withdrawals, as doing so can mean missing out on years of compounded investment growth, ultimately reducing retirement funds.

Expert Perspectives and Alternatives

“The 10% penalty for early withdrawals is meant to discourage people from using retirement savings before retirement,” explained Brian Schmehil, managing director of wealth management at the Mather Group. “Retirement accounts like 401(k)s and IRAs are intended for long-term savings, not short-term needs.”

Schmehil also noted that there are better alternatives to using your 401(k) for a home purchase. For instance, if you have a Roth IRA, you can withdraw your contributions at any time without taxes or penalties. Additionally, first-time homebuyers can use up to $10,000 of Roth IRA investment earnings for a home purchase without facing the 10% penalty.

“Compared to a 401(k), Roth IRAs generally offer more flexibility, lower administrative fees, and the advantage of tax-free growth,” Schmehil added.

How Borrowing from Your 401(k) Affects Retirement

Withdrawing from your 401(k) for a home down payment can cost you thousands in lost retirement savings, depending on the amount and timing.

According to Redfin, the median home price in December 2025 was $428,575. If you put down 20%—about $85,700—and took that from your 401(k), you’d forgo decades of compounding growth.

Assuming an annual return of 8%, that $85,700 could grow to roughly $862,000 over 30 years. By comparison, home equity typically grows at 3% to 4% per year, resulting in $235,000 to $277,000. That’s a difference of about $600,000 in potential retirement wealth lost.