Trump's team hints at potential 401(k) home down payment plan. Here's how this option could hurt your retirement

Trump's team hints at potential 401(k) home down payment plan. Here's how this option could hurt your retirement

Mike Crisolago

Wed, January 21, 2026 at 4:00 PM EST

8 min read

While President Trump called home ownership “a symbol of [the] health and vigor of American society” and a ”bedrock of the American dream” during his World Economic Forum speech in Davos on January 21 (1), he steered clear of mentioning anything about a widely-expected plan to allow Americans to withdraw money they’ve saved in their 401(k) retirement accounts to put toward the purchase of a new home.

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In lieu of a 401(k) plan, Trump touted other moves, including telling the government-sponsored Fannie Mae and Freddie Mac to snap up $200 billion worth of mortgage bonds to lower the cost of fixed-rate loans (2), signing an executive order (3) “banning large institutional investors from buying single-family homes,” and suggested a possible reworking of laws around depreciation tax deductions, noting that businesses are eligible for such breaks on homes they purchase while individual buyers are not (4).

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Trump also reiterated his call for Congress to put a 10% cap on credit card interest rates for one year (5). This directive came after Trump called credit card debt “one of the biggest barriers to saving for a down payment.” It’s unclear, however, if or when any of the initiatives mentioned above will actually go into effect.

Such moves, though, come as the U.S. heads into a midterm season with an increasing number of Trump voters joining the president’s critics in blaming him and his administration for the country’s ongoing affordability crisis (6).

The housing market, in particular, has been stifled in recent years by high prices and low inventory. A National Association of Realtors (NAR) report showed that in 2025, first-time homebuyers accounted for only 21% of the market — a 44-year low (7). Their median age also nearly doubled in that same period, reaching a record high of 40. The report also noted a 19% median down payment for all buyers, with first-timers topping out at 10% — a 36-year high.

Still, the reveal of more details around the proposed 401(k) housing affordability plan never materialized in Davos, despite Trump advisor and National Economic Council Director Kevin Hassett previously telling Fox Business (8) that “the president will put the final plan out in Davos.”

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So, while Americans wait to learn more details on that, some experts are already warning that such a real estate strategy could prove to be a house of cards for your long-term finances.

Why using your 401(k) to buy a house is a gamble

The obvious issue that many take with the expected Trump 401(k) housing plan is that you can, theoretically, already withdraw money from your 401(k) to use for a downpayment on a house. But making such a withdrawal before the age of 59 1/2 usually comes with a 10% penalty, among other possible fees.

And even if you were able to wave the penalty and potential fees, there’s still the question of how much compound interest you’d lose on the money you withdraw. For example, the financial and retirement firm Francis calculated that, assuming a 7% annual rate of return, a young person withdrawing only $10,000 from their 401(k) today could lose more than $80,000 in what they would have earned in compound interest over the next 30 years (9).

“They want you to raid your retirement account but also want to pretend you're replacing it by moving home equity in,” finance expert Michael Ryan told Newsweek (10). “Except home equity and stock market growth are not the same beast. It's looking like you're solving the problem while actually making it worse.”

Plus, as Redfin chief economist Daryl Fairweather explained to BBC, another risk of sacrificing part of your 401(k) for a real estate down payment is that the home itself could lose value over time, dealing a bigger blow to your overall equity (11).

Financial planner Uchechi Kalu, meanwhile, explained that even if you do get a down payment out of your 401(k), that’s only the beginning for many prospective buyers (12). “When you add a mortgage, on top of expenses such as child care and student loan repayment,” she said, “homebuying becomes out of the question.”

Another concern stems from the fact that Congressional research shows that only about 54% of Americans have any type of retirement savings account, including a 401(k) (13).

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As such, Jason Richardson, the senior director of research at the National Community Reinvestment Coalition, told the BBC that Trump’s 401(k) strategy “isn't a targeted assistance program for people who need help with down payments — it's giving people who already have substantial retirement savings more purchasing power, which will likely just drive home prices up further."

The NAR’s Executive Vice President Shannon McGahn warned that (7), “delayed or denied homeownership until age 40 — instead of 30 — can mean losing roughly $150,000 in equity on a typical starter home.”

As such, the NAR has instead called for more policies that “help unlock existing inventory, enable more new home construction, streamline local zoning and permitting, and modernize construction methods to build more homes faster and more affordably” — all of which would not only help more buyers enter the market, but do so sooner.

Regardless of which side of the fence you land, it’s important to remember that changing the rules around 401(k) withdrawals involves a change to the tax code, and that requires Congressional approval. And as the Wall Street Journal noted (14), “that could be an uphill climb in the closely divided Congress.”

How to save for a house without draining your retirement account

Time will tell if Trump’s 401(k) housing affordability plan actually gets announced and off the ground — including Congressional approval — or if it goes the way of his disappearing 50-year mortgage plan. Until then, the best way to lay the foundation for a future home purchase is to follow proven strategies and prudent savings tips that have helped many others achieve the same goal.

To start (15), experts recommend parking your down payment savings in “checking, regular savings, or high-yield savings accounts,” or otherwise “cash-like investments such as money market funds or certificates of deposit that will mature before you anticipate needing the money.”

You can also sometimes get away with withdrawing money from an IRA or Roth IRA without fees, though you still run into the same problem as you do with the 401(k) when it comes to the lost compound interest on the cash you take out.

Ramsey Solutions, meanwhile, likes the idea of a money market savings account to stash your cash for a down payment, suggesting that setting a dollar goal for the down payment — and then working toward that amount in “bite-size monthly saving targets” — can make the process feel less daunting (16). In addition, if aiming for a 20% down payment is realistic, Ramsey Solutions notes that it would help you side-step the need for private mortgage insurance.

For what it’s worth, Ramsey Solutions also cautions against “expensive FHA, VA and USDA loans that rip you off,” as well as using retirement savings for home purchasing, warning that such a move will “tank the long-term growth of your retirement savings — costing you hundreds of thousands of dollars at retirement.”

As financial planner Chris Kampitsis shared with CNBC (17), “If you know, in a few years, you’re going to want to make a real estate investment, you probably shouldn’t be doing all of your saving [in] your 401(k).”

Trump's team hints at potential 401(k) home down payment plan. Here's how this option could hurt your retirement