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Every few years, Washington comes up with a “creative” solution to an affordability problem that sounds helpful on the surface and quietly creates a much bigger problem underneath.
The latest example? A proposal tied to President Donald Trump’s housing affordability agenda that would allow Americans to tap their 401(k) retirement savings to fund a down payment on a home.
I understand the intent. Housing affordability is stretched. Home prices are near all-time highs. Mortgage rates are still hovering around 6%. First-time buyers feel locked out. COVID-19 buyers can’t afford to trade up. Politically, this all sounds like a win.
Financially, it’s a terrible idea, in my view. This is the classic case of robbing Peter to pay Paul and, in this case, Peter is your future self.
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Trump’s solution to the American dream is a nightmare for those who cash in part of their retirement to buy houses. (iStock)
Your 401(k) was designed for one purpose. To fund decades of income when you can no longer work. It was never meant to double as a short-term housing fund or a policy pressure valve when affordability gets tight.
When you pull money out early of your 401(k), even if it’s labeled a “loan” or “special access,” three brutally damaging things happen:
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That last point matters more than politicians would like to admit.
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According to multiple retirement studies, a large percentage of 401(k) loans are never repaid because of job changes, layoffs or life disruptions. What do we think will happen when someone takes a 401(k) distribution for a down payment on a home? The odds are it will never ever get paid back for retirement.
Let’s put real numbers behind this.
If a 35-year-old pulls $50,000 from their 401(k) to buy a home and never replaces it, that single decision could cost them $300,000 to $400,000 by retirement, assuming long-term market averages. That’s just math.
President Donald Trump gestures as he arrives to deliver remarks on the U.S. economy and affordability at the Mount Airy Casino Resort in Mount Pocono, Penn., Dec. 9, 2025. (Jonathan Ernst/Reuters)
And here’s the irony about this. The people most likely to use this proposal are the ones who already struggle to save consistently. They don’t have excess cash flow. They don’t max out retirement plans. So, once the money is gone, it’s gone.
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Supporters of this idea argue that “homeownership builds wealth.” That’s partially true, but it’s also incomplete in the financial planning equation.
A home is:
Retirement accounts, on the other hand, are:
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Using retirement money to buy a home concentrates risk instead of spreading it. You’re tying your future financial security to one asset in one location at one moment in time.
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One way to defeat the affordability crunch is the most traditional way — marriage. (iStock)
The truth is uncomfortable right now, but necessary to review.
Housing isn’t unaffordable because Americans aren’t creative enough with their retirement money. It’s unaffordable because:
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Letting people tap 401(k)s doesn’t fix any of that. It simply injects more demand into a broken system, which can push prices higher and reward sellers not buyers.
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In other words, this proposal could make homes even more expensive while quietly hollowing out retirement security, putting even more pressure on Social Security.
Policies that trade long-term stability for short-term relief almost always backfire.
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Using retirement money to buy a home concentrates risk instead of spreading it. You’re tying your future financial security to one asset in one location at one moment in time.
We’ve already watched Americans underfund retirement for decades. Encouraging them to drain the one bucket that actually works for them, which is a tax-advantaged long-term, automated saving program, is going to move people backward.
Homeownership matters.
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Retirement security matters more.
And no matter how you dress it up, it’s never a good idea to rob Peter to pay Paul, especially when Peter is the older version of you who won’t get a second chance to fix it.
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