Should you use a 401(k) to buy a home? Trump’s ‘not a huge fan’

President Donald Trump last week took exception to a proposal backed by one of his economic advisors to let Americans tap their 401(k) savings for home downpayments — an idea that many financial advisors also oppose.

“I’m not a huge fan. Other people like it,” Trump told reporters on Thursday aboard Air Force One en route to Washington from Davos, Switzerland, where he had attended the World Economic Forum’s annual meeting. Kevin Hassett, director of the National Economic Council, told Fox Business on Jan. 16 that the president would unveil such an initiative while in Davos.

Trump added, “One of the reasons I don’t like it is that their 401(k)s are doing so well.”

The average 401(k) balance jumped 9% in the third quarter to $144,400 from the same time a year earlier, according to Fidelity Investments. The amount marks an all-time high.

Among 126.9 million private-sector workers, 72% have access to a retirement plan at work, according to the Bureau of Labor Statistics. Overall, 53% of all workers participate in a plan.

There are already ways for people to tap their 401(k) or individual retirement account to access money for a down payment — in some cases without paying an early withdrawal penalty — but experts say using retirement funds for a home purchase may not help workers with either goal.

“I really view tapping retirement money more as an option of last resort,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York and a member of CNBC’s Financial Advisor Council.

“By and large, if [someone] is using retirement money to reach other goals, I would raise questions about priorities and affordability overall,” Boneparth said.

Affordability issues have taken center stage as households continue to struggle to absorb higher prices. Costs for everyday purchases have jumped more than 25% since January 2020, according to the consumer price index.

While the president appears to be backing off the idea of using retirement money to help home buyers come up with down payments, the White House did issue an executive order Tuesday that calls for a ban on large institutional investors buying single-family homes.

Such purchases involve just 2% of the overall market, according to a 2024 report from the Government Accountability Office, but in some markets these investors own a sizable share. Trump also said earlier in January that he was directing Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed bonds to bring interest rates on home loans down.

Many would-be homebuyers have been priced out of the market due to constraints on inventory, prices that have surged over the last five years and elevated mortgage rates.

The national median sale price for a single-family home was $409,500 in December, up just 0.4% from a year earlier and down from the record high of $435,300 in June, according to the National Association of Realtors. The average interest rate on a 30-year mortgage is 6.17% as of Monday, according to Mortgage News Daily.

An upshot is that the share of home purchases involving first-time buyers recently hit a record low of 21%, according to the National Association of Realtors’ 2025 Profile of Home Buyers and Sellers, which analyzed transactions completed between July 2024 and June 2025.

NAR data shows the average first-time home buyer is now age 40 — an all-time high, and up from age 33 in 2020.

Given high home prices, amassing a down payment is among the biggest hurdles for potential home buyers. But even if workers could more easily tap their retirement accounts for a down payment, they may not have a large enough balance to do so.

The ideal is to put down at least 20% to avoid paying private mortgage insurance, which is generally required for mortgages that exceed 80% of the home’s value.

The median down payment among all buyers last year was 19%, according to the National Association of Realtors. The amount varies — 10% for first-time buyers and 23% for repeat buyers. This marks the highest median down payment for first-time buyers since 1989 and the highest for repeat buyers since 2003.

For illustration: On a $409,500 home, a 20% down payment would be $81,900. At 10%, it would be $40,950.

Meanwhile, although the average 401(k) balance is $148,153, according to Vanguard’s 2025 How America Saves report, the highest balances are concentrated among older savers. Younger workers — those who are typically first-time home buyers — tend to have lower 401(k) balances.

In the 25-to-34 age group, the median 401(k) balance is $16,255 — meaning half are higher, and half are lower. The average balance is $42,640, according to Vanguard’s 2025 How America Saves report.

For 401(k) savers ages 35 to 44, the median balance is $39,958, and the average is $103,552.

Personal savings is the most common source for down payment funds among first-time buyers: Most, 59%, rely on their savings, while 26% use assets such as 401(k)s, IRAs or stocks, and 22% receive help from family or friends, according to the NAR.

Under current law, qualified first-time homebuyers can withdraw up to $10,000 from an IRA to use for a down payment, without the typical 10% penalty that comes with distributions taken before age 59½. 

Alternatively, if your 401(k) plan allows loans — 80% do, according to Vanguard — you may be able to borrow against your account and use the proceeds to purchase a house. 

In that situation, you pay yourself back over time with interest. Depending on what your employer’s plan allows, you could take out as much as 50% of your vested account balance or $50,000, whichever is less. The exception to that is if your vested balance is under $10,000, in which case you can borrow up to that amount.

Loans typically must be repaid within five years, although your employer may allow a longer repayment term when the proceeds are used to purchase a home that’s your primary residence.

“You can take the loan and not have to pay taxes on it [as you would with a standard withdrawal], but you have to pay on that loan via a payroll deduction,” said CFP Margarita Cheng, chief executive officer of Blue Ocean Global Wealth in Gaithersburg, Maryland.

Additionally, if you leave your employer, the loan may become due almost immediately and considered a taxable distribution if you are unable to repay it, said Cheng, who is also a member of CNBC’s Financial Advisor Council.

Separately, if your 401(k) plan allows so-called hardship withdrawals — 94% of plans allow them, according to Vanguard — you may be able to take money from your account to use for the purchase of your home, but you will owe taxes and typically an early withdrawal penalty.

In 2024, 35% of hardship distributions were used to avoid a home foreclosure or eviction, which remains the most common reason for this type of withdrawal, according to Vanguard. Another 16% were used to fund a home purchase or repair.

Additionally, if you have a Roth IRA — whose contributions are not tax-deductible but the gains and withdrawals are tax-free in retirement — you can generally withdraw your contributions at any time without tax or penalty. For earnings, however, there could be a tax and/or penalty.

While some people do use their retirement savings to purchase a house, it’s important to remember that the goal of homeownership should be viewed in the context of a larger plan, experts say. When you withdraw from your retirement account, you not only reduce the balance but also miss out on the gains that the money would have made due to compounding interest.

“You’d be disrupting retirement dollars for a different goal,” Boneparth said.