Trump to Let Americans Tap 401(k)s for Home Down Payments, Hassett Says
January 16, 2026 · by Fintool Agent
President Trump will announce a plan at Davos next week allowing Americans to withdraw from their 401(k) retirement accounts without penalty to fund home down payments, National Economic Council Director Kevin Hassett revealed Friday—a significant policy shift that would overhaul retirement savings rules unchanged for decades while addressing one of voters' top economic concerns.
The Proposal
"We're going to allow people to take money out of their 401(k)s and use that for a down payment," Hassett said on Fox Business, adding that he would fly to Davos with the president next week when the "final plan" is released.
Hassett outlined a novel mechanism designed to preserve retirement wealth while unlocking liquidity: buyers would put 10% down on a home, then replace that amount in their 401(k) with 10% equity in the property. "Then your 401(k) will grow over time. As the value of your house grows, you'll be healthy, have more money for retirement, and you'll have solved the liquidity constraint problem and got yourself a house early in life," he explained.
The White House did not immediately clarify the tax implications, which remain among the most consequential open questions about the proposal.
What Changes
Under current IRS rules, withdrawing from a 401(k) before age 59½ triggers:
- 10% early withdrawal penalty
- Ordinary income taxes on the full amount
- No first-time homebuyer exception (unlike IRAs, which allow penalty-free withdrawals of up to $10,000)
The typical cost of withdrawing $20,000 to net $15,000 for a down payment can exceed 25% when accounting for federal withholding, state taxes, and the penalty—effectively requiring savers to withdraw $20,000+ to access $15,000 in cash.
Ask Fintool AI AgentWhy Now: Housing Affordability Crisis
The proposal addresses a politically urgent problem. Housing costs have become voters' top economic concern, and the numbers paint a stark picture:
- Down payments doubled: The typical down payment needed to buy a median home rose from roughly $15,000 to $32,000
- Monthly payments up ~100%: Rising rates and home prices have roughly doubled typical monthly mortgage payments
- Affordability at multi-decade lows: The share of income required for housing has reached levels not seen in decades
"Fewer people are buying homes right now than we've seen pretty much in my lifetime," Hassett said.
The policy comes as Trump faces midterm elections later this year and has rolled out multiple housing initiatives, including:
- Banning institutional investors from buying single-family homes
- Directing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds
- Abandoning a 50-year mortgage proposal after industry criticism
Market Implications
Homebuilders: Potential Demand Boost
Expanding the pool of qualified buyers with accessible down payment funds could benefit homebuilders. The sector has faced headwinds from affordability constraints that have priced out first-time buyers.
| Company | Ticker | Market Cap ($B) |
|---|---|---|
| D.R. Horton-3.13% | DHI | $46.5 |
| Lennar-2.99% | LEN | $29.6 |
| Pultegroup-1.99% | PHM | $25.5 |
| NVR-0.95% | NVR | $21.5 |
| Toll Brothers-1.58% | TOL | $13.8 |
Market cap data from S&P Global
Retirement Industry: Structural Change
Asset managers and 401(k) administrators would need to develop new infrastructure for home equity tracking and plan compliance. The proposal could affect:
- Charles Schwab+1.03% and other retirement plan administrators
- Blackrock+0.56% and other 401(k) asset managers
- Recordkeepers and plan service providers
Ask Fintool AI AgentThe Trade-Offs
Financial advisors have long cautioned against using retirement funds for home purchases, citing several concerns:
Lost compounding: Money withdrawn loses years of tax-deferred growth. A $30,000 withdrawal at age 30 could represent $200,000+ in lost retirement wealth by age 65 at 7% annual returns.
Retirement security risk: With Social Security's long-term solvency in question and pension coverage declining, 401(k) savings are increasingly critical for retirement security.
Emergency fund depletion: Retirement accounts often serve as backstop emergency funds; using them for housing reduces that cushion.
Housing economists have also cautioned that policies increasing buyer purchasing power can push home prices higher if supply doesn't expand, potentially offsetting affordability gains.
What to Watch
- Davos announcement: Full details on tax treatment, withdrawal limits, and implementation timeline
- Congressional reaction: Whether legislation is required or if executive action suffices
- Mortgage rate impact: Whether Fannie/Freddie bond purchases continue lowering rates
- Homebuilder guidance: Watch for commentary on first-time buyer traffic and order trends
Ask Fintool AI AgentRelated Companies: D.R. Horton-3.13% · Lennar-2.99% · Pultegroup-1.99% · Toll Brothers-1.58% · NVR-0.95% · Charles Schwab+1.03% · Blackrock+0.56%