By Peter Aitken and Suzanne Blake
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White House National Economic Council Director Kevin Hassett revealed Friday that the Trump administration is looking at options that would allow Americans to use their retirement funds to pay for a down payment on a house.
Hassett spoke about the plan during an appearance on Mornings With Maria on FOX Business, saying that President Donald Trump will "put the final plan out" during the Davos economic forum next week.
"The one you didn't mention that we're also talking about, and the president will put the final plan out in Davos next week, I'll be flying up there with him, is that we're going to allow people to take money out of their 401(k)s and use that for a down payment," Hassett said, noting that it's one of "a whole bunch of policies" the administration is working on to help people close the gap on the increasing cost of buying a home.
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Why It Matters
Today, the housing market remains out of reach for many Americans, with high interest rates and a median home sale price of $428,346 keeping many low- and middle-class Americans from their dreams of home ownership. According to Redfin, that marks a rise of 0.4 percent year over year in home sale prices.
Opening up 401ks to go toward a housing down payment could make home ownership more accessible, but experts warn of long-term effects when it comes to Americans' retirement prospects.
What To Know
Hassett stressed that American families are being cash strapped and often unable to afford the rate of a house down payment, which is currently on the rise.
"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. And so there's a real lot of room to make up," Hassett said.
During his interview appearance, the National Economic Council director discussed Trump’s proposal to direct "representatives" to buy $200 billion in mortgage-backed securities.
"Biden ignored the Housing Market, and instead was immersed with High Crime, Open Borders, runaway INFLATION, the Afghanistan Disaster, and a Military that he left in Chaos and Confusion," Trump wrote on Truth Social last week. "Everything was broken, but I, as President of the United States, have already fixed it!"
"Now, I am giving special attention to the Housing Market. Because I chose not to sell Fannie Mae and Freddie Mac in my First Term, a truly great decision, and against the advice of the ‘experts,’ it is now worth many times that amount — AN ABSOLUTE FORTUNE — and has $200 BILLION DOLLARS IN CASH," he continued. "Because of this, I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS. This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable."
While some are concerned that using your 401k could help you buy a home now but hurt your later retirement funds, Hassett said there were ways to work around those concerns.
"What you have to do is come up with a way, so, a simple way. We're still talking about the mechanics of it, but suppose that you put 10 percent down on a home, and then you take 10 percent of the equity of the home, and put it in as an asset in your 401(k), then your 401(k) will grow over time," Hassett said.
He added: "As the value of your house grows, you'll be healthy, have more money for retirement and you'll have solved the liquidity constraint problem and got yourself a house early in life."
Currently, Individual Retirement Arrangements (IRA) can be withdrawn penalty-free under the first-time homebuyer exception, but that doesn’t apply to 401(k) plans.
Generally, if you take a direct withdrawal before age 59-and-a-half, you’ll owe a 10 percent early withdrawal penalty on top of ordinary income taxes.
“Encouraging Americans to take money out of their 401ks for any reason is almost always a bad idea,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “The money set aside and invested over time is intended to provide for individuals in retirement and treating it like a cookie jar that one can continually go to for financial support, even for purchases as pivotal as a home, is bound to end in heartbreak for most who do it.”
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What People Are Saying
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “Ordinarily, any early withdrawal from a 401k triggers not just taxes to be paid, but a penalty fee, as well. Removing the penalty fee would soften the blow, but you're still paying taxes on the income and robbing yourself of future gains that could support you years down the road. From working to lower mortgage rates to encouraging more supply through builders, there are much better ways of expanding home ownership.”
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: “Using retirement accounts to fund housing signals a policy failure rather than a solution. A 10-20 percent down payment on a starter home could run people north of $60k, which many first-time home buyers don't have stowed away in a 401k. The main issue is, if you don't have that money readily available, maybe we should rethink homeownership.”
Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek: “They're trying to have it both ways. They want you to raid your retirement account but also want to pretend you're replacing it by moving home equity in. Except home equity and stock market growth are not the same beast…Some may say they are ‘doing something to say they did something,’ but it's worse. It's looking like you're solving the problem while actually making it worse for exactly the people who need help most.”
What Happens Next
Thompson said Trump's proposal would set the retirement timeline back several years if not indefinitely.
“Now, you have an asset that would need to be paid for the next 30-years, with the majority of the interest being paid during the first 10. Yes, you can think of this as an asset, but it would be illiquid. You could access some equity, but you are basically robbing Peter to pay Paul,” he said.
“I don't see where this could be passed since there are already provisions giving people access to their accounts via loans up to $50k. The 401k was meant to be a replacement for Defined Benefits Pension plans, and if you are using it to grab assets, you are not using it as it was initially designed.”
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