Retirement Retirement Planning

Trump Advisor Proposed Using 401(k) Funds For Down Payments - But Is It a Good Idea?

There are pros and cons to this huge decision.

By Catherine Collins , Edited by Andrea Basse

Updated April 24, 2026

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In January of 2026, the National Economic Council Director, Kevin Hassett, said the Trump Administration was considering a policy that would allow Americans to withdraw money from their 401(k) retirement plans to use as down payments on homes. These policies would allow penalty-free withdrawals so long as they met the requirements.

However, withdrawing money from a 401(k) is a big financial decision, so many are wondering whether this policy is a good idea for Americans. Here's more information about it.

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Is Hassett's idea a good one for Americans?

Hassett's idea came about at a time when Americans felt that homeownership was out of reach. With high interest rates and skyrocketing home prices, many Americans feel like owning a home might not be a goal they can achieve. However, being able to use retirement funds and withdraw them penalty-free could help many Americans save enough to make a down payment on a home.

However, there are still downsides to withdrawing money from a 401(k), even if there is no penalty.

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President Trump announced he doesn't support this 401(k) idea

Although his administration was considering the idea, Trump later told a reporter he was not a proponent of it because 401(k) balances had performed well in the past year. According to data from Fidelity, 401(k) balances are up 10% percent from the previous year, and President Trump said he wants Americans to continue investing in them.

A current House Republican bill would allow withdrawals for homebuying expenses

Although the president said he does not support the idea of Americans withdrawing 401(k) money for home down payments, Representative John McGuite introduced a House Republican bill called the Home Savings Act in January. This bill would allow penalty- and tax-free 401(k) withdrawals for homebuying expenses, as long as they are used for a down payment or closing costs.

Currently, this bill is in the House Committee on Ways and Means and will make its way through the judiciary process before it's officially passed.

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Homebuyers can already withdraw money penalty-free from IRAs for housing expenses

Ultimately, the idea of withdrawing money from a retirement account for housing expenses is not unconventional. After all, first-time home buyers can already withdraw up to $10,000 penalty free from an IRA as long as those funds are used for housing costs. Many people use their IRAs for this purpose because they do not have to pay early withdrawal fees.

Another way consumers can use their 401(k) balances to pay for housing costs is by taking out a 401(k) loan. However, doing so comes with drawbacks. Those loans must be repaid, and borrowers can lose significant investment gains by withdrawing the money. Additionally, if you lose your job, you have to pay back your 401(k) loan within days or else it will count as an early withdrawal.

The penalty for withdrawing retirement savings for a home down payment

At this time, consumers would pay a 10% early withdrawal penalty for withdrawing their 401(k) balances before age 59 and a half. Additionally, withdrawals would be taxed at ordinary income, which could place people in a higher tax bracket. Lastly, the lost investment gains due to taking money out of a 401(k) could be in the thousands.

For those reasons, employees should think carefully about the consequences of withdrawing money from their 401(k) retirement plans early.

401(k) withdrawals for homeownership would only benefit a few

The average 401(k) balance for people in their 30s is $212,356, according to data from Empower. That means that in order to withdraw enough money to pay for a house down payment, employees would have to take out a considerable amount of money.

That means this policy would only benefit those who have high 401(k) balances. Lower-income workers might not have the ability to benefit from a bill that allows penalty-free withdrawals.

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Questions employees should ask before withdrawing retirement money for a down payment

Before withdrawing money for a house down payment, people can consider alternative methods of paying for it. For example, spending time saving up for a down payment allows you to keep your 401(k) intact. Many people also borrow money from family, which they can slowly pay off over time. There are also many down payment assistance programs for eligible first-time homebuyers.

Bottom line

There is no law that allows consumers to withdraw money from 401(k)s penalty-free for homeownership purposes. However, a proposed bill would allow this in the future if it passes. Still, American workers should familiarize themselves with the pros and cons of early withdrawals if their goal is to have a stress-free retirement one day.

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Author Details

Catherine Collins

Catherine Collins is a nationally recognized personal finance writer with 15 years of experience who has made 401(k)s her specialty. She covers the policy changes, tax implications, rule updates, and common mistakes that shape how Americans save for retirement, translating Washington proposals and regulatory shifts into practical guidance. Her bylines include U.S. News and World Report, Newsweek, Money, and Entrepreneur.