401(k) home down payment: 401(k) for a home? Trump administration’s new proposal could change how Americans buy

Hassett talked about the plan in an interview with Fox Business News. He said his goal is to help people buy homes during a tough housing market. The plan is part of the Trump administration’s effort to deal with the housing affordability crisis, as the New York Post notes. The administration wants to take action before this year’s midterm elections.

Using a household 401(k)

Hassett said publicly that people would be allowed to withdraw money from their 401(k)s for a down payment on a house. This is currently not allowed without penalty for most people. Under current rules, taking money from a 401(k) before age 59½ generally triggers an extra 10% tax penalty. In addition to this penalty, ordinary income taxes also apply.
Hassett tried to calm fears that this new rule could hurt retirement savings. He said the White House was working on a “simple” system to avoid hurting long-term savings. Hassett gave an example of how the plan could work. In this example, as the New York Post notes, a buyer puts a 10% down payment on a home using 401(k) money. The buyer will then take 10% of the home’s equity and count it as an asset in the 401(k).

This way, Hassett said, a 401(k) can grow over time. He emphasized that the details are still being discussed and nothing has been finalized yet. President Trump is expected to present the final plan at an economic conference in Davos, Switzerland. The announcement is expected during this global event next week. Currently, first-time home buyers can’t use 401(k) money without penalty.

IRA rules vs 401(k)

There is already a special rule for IRAs, but not for 401(k)s. This rule allows first-time buyers to withdraw up to $10,000 from certain IRA accounts without penalty. The IRA exclusion applies to IRA, SEP, SIMPLE IRA, and SARSEP plans. The exception does not apply to 401(k) plans. It’s unclear whether Trump’s new 401(k) plan will also have a $10,000 limit, according to a New York Post report.
The White House did not say whether there would be a cap on withdrawals. The White House also did not say when the plan would begin. White House spokesman Davis Ingle said Trump has promised to increase housing affordability. Ingle blamed Joe Biden’s economic policies for the current housing problems.

Other housing plans

Ingle said the administration is seeking every tool possible to help Americans buy homes. (Davis Ingle. He added that Trump will be announcing more housing-related ideas soon. The 401(k) proposal is just one of several recent housing moves by Trump, as the New York Post noted. Earlier this month, Trump said he wanted to ban large investors from buying single-family homes. Trump said homes are for people, not corporations.

He said big investors buying and renting homes hurt regular buyers. Trump did not explain exactly how the investor ban would work. He promised to provide more details during his appearance in Davos. Housing advocates say big corporate ownership can reduce supply and increase prices. They argue this makes it harder for regular families to buy homes. Some analysts say big investors only dominate certain markets.

Mortgage interest rates and Fed pressure

These analysts argue that a nationwide ban may not lower prices everywhere. Many experts say the real problem is a lack of housing supply. They argue that local zoning and building codes need to be reformed to increase construction. Firms that own 100 or more single-family homes control only 2% of such homes nationwide.

Trump also ordered a plan to purchase a massive $200 billion worth of mortgage bonds. Trump said this move would lower mortgage rates. He also said monthly mortgage payments would be reduced. Trump argued this would make homeownership more affordable. Fannie Mae and Freddie Mac will purchase the bonds. According to the New York Post, Bill Pulte is the Director of the Federal Housing Finance Agency. Following the bond purchase announcement, mortgage rates briefly dropped below 6%. It’s the first time in years that rates have fallen this much.

Mortgage refinancing demand rose nearly 40% the following week. Trump also increased pressure on the Fed to lower interest rates. He has repeatedly criticized Fed Chairman Jerome Powell for not acting faster. Powell recently said he was under criminal investigation. The investigation concerns his testimony regarding the Fed’s $2.5 billion headquarters renovation. Trump has not yet named Powell’s replacement.

Betting markets indicate that Kevin Warsh is increasingly likely to be nominated. Those odds increased after Trump said he wanted Hassett to remain in his current position. These moves show that Trump has made housing affordability his main focus. The idea of ​​a 401(k) home down payment could be one of the biggest changes to home-buying rules in years, the New York Post reported. Final details are still pending and will be watched closely by buyers and savers alike.

FAQ

Q1. Can I use my 401(k) money to buy a house under Trump’s new plan?

Yes, the proposal would allow people to use 401(k) money for a home down payment, but final rules have not been announced yet.

Q2. Will there be a penalty for using 401(k) money to buy a house?

The administration says it is working on a way to allow withdrawals without damaging savings, but details are still unclear.