President Donald Trump will unveil a plan next week at the World Economic Forum in Davos that would allow Americans to withdraw money from their 401(k) retirement accounts to use as down payments on home purchases, according to National Economic Council Director Kevin Hassett.

The proposal represents the administration's latest attempt to address the housing affordability crisis that has priced millions of Americans out of homeownership. But financial planners and retirement experts are raising concerns that the plan could leave workers with inadequate savings later in life.

The Housing Affordability Problem

Hassett laid out the economic rationale during a Fox Business Network interview, pointing to dramatic increases in housing costs over recent years.

"The typical monthly payment about doubled for an ordinary family buying an ordinary home. And the down payment they needed to buy a home went from about $15,000, to about $32,000."

— Kevin Hassett, National Economic Council Director

With the median home sale price now exceeding $428,000 and mortgage rates hovering around 6%, the combination of high prices and elevated borrowing costs has created a formidable barrier for first-time buyers. The traditional 20% down payment on a median-priced home would require nearly $86,000—a sum few young families have readily available.

How the Plan Would Work

While specific details remain under development, the administration has indicated that the plan would create a mechanism for penalty-free 401(k) withdrawals specifically for home purchases. Currently, withdrawing from a 401(k) before age 59 and a half typically incurs a 10% early withdrawal penalty on top of ordinary income taxes.

Hassett acknowledged the complexity involved: "We're still talking about the mechanics of it. We want to find a simple way to allow the fund move so that it would not hurt people's retirement plans."

The administration appears to be seeking a middle ground that would provide access to retirement funds while preserving some protections for long-term savings. Possibilities include:

  • Allowing only a portion of 401(k) balances to be used for down payments
  • Requiring repayment of withdrawn funds over time
  • Limiting eligibility to first-time homebuyers
  • Setting income thresholds for participation

Expert Concerns Mount

The proposal has drawn sharp criticism from retirement planning professionals who worry about the long-term implications for Americans' financial security.

"Encouraging Americans to take money out of their 401ks for any reason is almost always a bad idea. The money set aside and invested over time is intended to provide for individuals in retirement."

— Alex Beene, Financial literacy instructor, University of Tennessee at Martin

Critics point to the power of compound growth in retirement accounts. A $30,000 withdrawal at age 30, assuming 7% annual returns, could translate to more than $200,000 less in retirement savings by age 65. That shortfall could force retirees to delay retirement, reduce their standard of living, or rely more heavily on Social Security.

The Current Landscape

Some retirement vehicles already permit home-related withdrawals. Individual Retirement Accounts (IRAs) allow penalty-free withdrawals of up to $10,000 for first-time homebuyers under the first-time homebuyer exception. However, this exception does not currently apply to 401(k) plans.

The Trump proposal would significantly expand access to retirement funds for housing, potentially affecting the roughly 70 million Americans who participate in 401(k) plans with combined assets exceeding $7 trillion.

Broader Housing Initiatives

The 401(k) proposal is part of a broader housing affordability push from the administration. Trump has also floated:

  • Institutional investor restrictions: Banning or limiting purchases of single-family homes by large investment firms
  • Mortgage rate reduction: Directing the Federal Housing Finance Agency to purchase $200 billion in bonds from Fannie Mae and Freddie Mac to lower mortgage rates
  • 50-year mortgages: Initially proposed but now paused, this would have extended loan terms to reduce monthly payments

What It Means for Homebuyers

For prospective homebuyers struggling to accumulate a down payment, the proposal could provide a pathway to homeownership that wouldn't otherwise exist. Housing advocates note that homeownership itself is a form of forced savings and wealth building, potentially offsetting the retirement account withdrawal.

However, homebuyers would need to carefully weigh the trade-offs:

  • Lost compounding growth on withdrawn retirement funds
  • Potential tax implications depending on final plan structure
  • Risk of being "house poor" with depleted emergency savings
  • Possibility of home value declines reducing overall net worth

Timeline and Implementation

Trump is scheduled to address the World Economic Forum on Wednesday, January 21, where he's expected to formally announce the proposal. Implementation would likely require regulatory changes rather than congressional action, though the exact legal pathway remains unclear.

The proposal arrives as the housing market shows early signs of normalization, with mortgage rates recently dipping below 6% for the first time since September 2022 and inventory slowly improving in many markets. Whether additional demand-side stimulus is needed—or wise—remains a point of debate among economists.