Trump Backs Away From 401(k) Homebuying Plan as Affordability Concerns Rise

President Trump, after initially considering a plan to allow Americans to tap their 401(k) savings for home down payments, has expressed reservations. “I’m not a huge fan,” Trump stated aboard Air Force One, acknowledging the idea wasn’t universally supported despite being championed by National Economic Council Director Kevin Hassett. This shift comes as the average 401(k) balance reached a record high of $144,400 in the third quarter, according to Fidelity Investments.

The proposed 401(k) access was intended to address growing affordability concerns in the housing market. Costs for everyday purchases have risen over 25% since January 2020, according to the consumer price index. However, financial advisors, like Douglas Boneparth of Bone Fide Wealth, caution against using retirement funds for short-term goals. “I really view tapping retirement money more as an option of last resort,” Boneparth said. “By and large, if [someone] is using retirement money to reach other goals, I would raise questions about priorities and affordability overall.”

Despite backing away from the 401(k) proposal, the White House has introduced alternative measures. An executive order was issued calling for a ban on large institutional investors purchasing single-family homes. While these purchases represent only 2% of the overall market, they hold a significant share in some areas. Trump also directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed bonds, aiming to lower home loan interest rates.

Many potential homebuyers are facing challenges due to limited inventory, surging prices over the past five years, and elevated mortgage rates. The national median sale price for a single-family home was $409,500 in December, with the average 30-year mortgage rate at 6.17% as of February 9, 2026. This has led to a record low share of home purchases involving first-time buyers – just 21%, according to the National Association of Realtors.

The average first-time home buyer is now age 40, an all-time high, up from age 33 in 2020. This suggests a growing delay in achieving homeownership.

While the average 401(k) balance is $148,153, balances vary significantly by age. Savers aged 25-34 have a median balance of $16,255, while those aged 35-44 have a median of $39,958. This highlights the difficulty for younger, first-time homebuyers to access substantial funds for a down payment, even if permitted.

Most first-time buyers (59%) rely on personal savings for down payments, while 26% use assets like 401(k)s or IRAs, and 22% receive facilitate from family or friends.

Current regulations allow qualified first-time homebuyers to withdraw up to $10,000 from an IRA without penalty. Many 401(k) plans (80%) offer loan options, allowing participants to borrow up to 50% of their vested balance or $50,000, whichever is less. However, these loans must be repaid with interest, often through payroll deductions.

Hardship withdrawals are also available in 94% of plans, though they are typically used for more pressing needs, such as avoiding foreclosure (35% of hardship distributions in 2024) or home repair (16%).

• Can I withdraw from my 401(k) to buy a house? You may be able to take a loan or a hardship withdrawal, but both have potential drawbacks, including taxes and penalties.
• What is the penalty for early 401(k) withdrawal? Typically 10%, although there are exceptions for certain situations.
• What is the average down payment? The national average down payment was 19% in 2025, varying between 10% for first-time buyers and 23% for repeat buyers.
• What are the risks of using retirement funds for a down payment? You reduce your retirement savings and miss out on potential investment growth.