Trump Plan Lets Penalty-Free 401(k) Withdrawals for Home Down Payments

(DAVOS, SWITZERLAND) — President Trump will unveil final details next week on a housing plan that National Economic Council Director Kevin Hassett said would let Americans tap 401(k)s penalty-free to cover home down payments.

Kevin Hassett disclosed the proposal on January 17, 2026 in a Fox Business interview, framing it as a way to clear what he described as a cash bottleneck that keeps would-be buyers on the sidelines.

Hassett said Trump would present the plan at the Davos conference, and he linked it to additional affordability steps, including directing representatives to buy $200 billion in mortgage-backed securities to lower rates.

The White House adviser’s description, however, left core features unresolved, including withdrawal limits, eligibility criteria such as whether it would apply only to first-time buyers, and whether it would extend beyond 401(k)s to other defined contribution plans.

Why timing and liquidity matter

For homebuyers, the timing matters because down-payment liquidity has become a central constraint even when borrowers can qualify for monthly payments.

Any shift in retirement-account rules could alter how quickly buyers can assemble cash, affecting when they can enter the market.

Retirement savers face a different tradeoff: quicker access to money could help them buy sooner, but it could also reduce long-term retirement balances if withdrawals are not replaced.

What Hassett described about the proposal

Hassett said the objective is to enable penalty-free 401(k) distributions specifically for down payments, and he argued that typical down payments have risen from $15,000 to $32,000.

He said that increase has doubled monthly payments for average homes, and that the concept is aimed at relieving a cash bottleneck that keeps buyers on the sidelines.

Mortgage lenders generally look closely at where a down payment comes from, and a policy aimed at 401(k) funds could raise practical questions around documentation, timing, and whether borrowers still hold enough reserves after the withdrawal.

Buyers who lean on retirement funds often still need to show they can handle future housing costs, and any program that relaxes penalties would not necessarily change underwriting assessments of a borrower’s overall financial position.

Reciprocity and the “home equity inside a 401(k)” idea

Hassett described a reciprocity concept that he suggested could allow retirement savers to rebuild their 401(k) positions by putting housing wealth back into their accounts later.

In his example, a homeowner might contribute 10% of home equity as an asset in the 401(k>, allowing it to grow with the house value, though Hassett did not provide operational details on valuation, liquidity, or portability.

That “home equity inside a 401(k)” concept would raise administrative and legal complexities even if the policy were authorized, including how plans would track an illiquid housing-linked asset and how gains and losses would be treated.

It could also create questions for plan administration and disclosures, because 401(k)s are typically built around liquid, readily priced investments rather than assets tied to individual property markets.

Current law and comparable rules

Under current law, early withdrawals from 401(k)s before age 59½ generally trigger a 10% penalty plus income taxes, and there is no first-time homebuyer exception that applies directly to 401(k)s.

By contrast, IRAs allow up to $10,000 penalty-free for first-time homebuyers, though income taxes still apply, creating a limited path that does not depend on an employer plan.

Some savers use loans rather than withdrawals to access 401(k) funds, but those loans come with repayment obligations and plan-specific rules that can constrain availability and duration.

Readers weighing that option often focus on repayment and job-change risk described in guides to 401(k) loan rules.

Legislative and practical hurdles

Hassett said the 401(k) down-payment concept would require new legislation, and he indicated details are still being discussed, including limits, eligibility, and whether other plans would qualify.

That legislative hurdle matters for borrowers deciding what to do now, because a teased proposal does not change existing penalties or taxes and does not create a new option for a buyer trying to close in the near term.

Hassett tied the housing proposal to other policy ideas, including a one-year cap on credit card interest rates and a ban on large institutional investors buying single-family homes.

He also connected it to keeping Fannie Mae and Freddie Mac, which he described as valued far higher now with $200 billion in cash, and avoiding their sale from Trump’s first term.

Related bills and alternative approaches

Separately, Hassett pointed to a first-time homebuyer legislative effort that would change IRA rules rather than 401(k) rules, highlighting how different parts of the retirement system can be used for housing but do not share the same exceptions.

A bill introduced in September 2025, the Uplifting First-Time Homebuyers Act, would raise the IRA penalty-free limit to $50,000 for those without homeownership in the prior two years, but it excludes 401(k)s, with rollovers described as a workaround.

Timing, taxes, and practical steps for buyers and savers

Because the Davos conference rollout is expected to add detail, prospective buyers and retirement savers are left preparing around what is already clear from Hassett’s outline: the plan is aimed at down payments, described as penalty-free, and paired with other affordability measures.

Even if “penalty-free” becomes law, that does not necessarily mean tax-free, and Hassett did not specify how income taxes would be treated, a distinction that can change the real cost of taking money out.

For buyers thinking through timing, the most practical steps remain mortgage basics that do not depend on legislation, including keeping clean documentation for funds used at closing and planning for cash reserves after any down-payment transfer.

Households can also compare how IRA and 401(k) eligibility rules fit their own status, including families with unusual immigration circumstances, because retirement participation can depend on work authorization and plan rules.

Some readers consult explanations of IRA and 401(k) eligibility when mapping out contributions and withdrawal choices.

Savers evaluating early access should also weigh the alternative of waiting to accumulate cash outside retirement accounts, because even a penalty waiver could still leave a borrower with a smaller retirement base for future compounding.

At the same time, Hassett argued that earlier homeownership can build long-term wealth through an appreciating asset, and he presented the proposal as a way to move first-time buyers into homes sooner while supporting retirement outcomes.

How quickly this could become a usable program

The White House adviser’s preview has revived attention around how quickly a presidential housing plan can become a usable program, since any 401(k) change would require Congress to authorize it and define compliance rules.

As buyers wait for Trump’s Davos appearance, the clearest takeaway from Hassett’s outline is that 401(k)s and down payments have been placed at the center of the administration’s housing pitch.

Specifics are promised next week, and legislative action is still needed before anything changes; readers tracking the policy thread have focused on earlier reporting that Trump was allowing 401(k) withdrawals for home purchases, but Hassett’s account left the mechanics for Congress and regulators to settle.