Trump administration proposal to use 401(k) savings for home down payments sparks debate

DUNEDIN, Fla. - Buying a home has traditionally been part of the American dream. For many everyday Americans, it’s out of reach as down payments are a major barrier.

The backstory:

According to the National Association of Realtors, the average first-time homebuyer in the U.S. is now 40 years old. That growing challenge is driving new ideas from policymakers, including a proposal tied to retirement savings.

One idea gaining ground would allow people to use their 401(k) savings to help cover a down payment.

Alfonso DiGirolamo is the president of Digi Realty Group. His team recently rebuilt a home in Dunedin, which suffered serious damage during Hurricane Helene.

"We actually had water come up a couple feet," DiGirolamo said. "The drywall and insulation was damaged, so we had to rip out those things."

DiGirolamo supports a proposed plan from the Trump administration that would allow homebuyers to tap into their 401(k)s for down payments without penalties.

What they're saying:

"It’s a great idea because in my world I actually use other people’s 401(k)’s and IRAs to help them buy homes before I do flips," DiGirolamo said.

The majority of Americans can't tap into their retirement savings before age 59½. Early withdrawals often trigger taxes, including standard income taxes along with a 10% federal penalty.

"If you’re able to pull money out of your 401(k), you have to pay a tax," DiGirolamo said. "That’s your normal income tax rate, plus a 10% penalty on top of that."

Derek Carlson, president of Realty ONE Group MVP, says many first-time buyers are struggling to save enough for down payments.

"It’s very difficult for a lot of these first-time home buyers to purchase a home," Carlson said. "Right now, the average down payment for a property is just over $60,000 and that’s a challenge."

Carlson also raised red flags regarding the long-term impact of using retirement savings to buy a home.

The other side:

"My concern is that they’re forfeiting their future," Carlson said. "Forfeiting their retirement down the road to get something now."

Tatiana Zagorovski is the founder of Trio Realty Partners. She shared a similar sentiment while preaching precautions.

"This is an easy entrance into the housing market without considering the long-term impact," Zagorovski said. "Without considering their financial situation."

What's next:

The proposal has not been finalized, as it remains under consideration by the Trump administration.

Financial advisors say this strategy may only work for people with strong savings and steady income.