President Donald Trump is preparing to unveil a housing affordability proposal that would allow Americans to use funds from their 401(k) retirement accounts for home down payments without the usual early‑withdrawal penalty, White House economic adviser Kevin Hassett said.
The proposal, expected to be formally announced by Trump next week at the World Economic Forum in Davos, Switzerland, would represent a significant change to long‑standing retirement savings rules.
Under current law, individuals who withdraw money from their 401(k) retirement accounts before age 59½ typically face a 10% early-withdrawal penalty in addition to ordinary income tax.
The Trump administration’s proposal would create a new exception allowing penalty‑free access to 401(k) funds specifically for home down payments.
This is similar to the existing exception that lets first‑time buyers take penalty‑free withdrawals of up to $10,000 from IRAs.
Hassett, speaking on Fox Business, said the plan stems from concerns that rising home prices and larger down payment requirements are pricing many Americans out of homeownership.
He noted that typical monthly mortgage payments have roughly doubled for an average family in recent years and that required down payments have climbed sharply.
Could jeopardize long-term savings
Financial planners and retirement experts caution that allowing penalty‑free withdrawals from retirement accounts could jeopardize long‑term savings.
“Big picture, this sounds like an attempt to solve or address the problem of housing affordability by potentially exacerbating a separate problem of retirement security,” said Jeff Hahn, partner at Stris & Maher and former Department of Labor litigator.
Changing 401(k) withdrawal rules would require new legislation or regulatory action.
These plans are strictly governed by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC), which set minimum standards for plan administration, fiduciary duty, and access to funds.
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