Trump ‘Not a Huge Fan’ of Homebuyers Using 401(k), 529 Savings Without Penalties

President Donald Trump told reporters Thursday he did not like the idea of allowing U.S. home-buyers to withdraw money with few penalties from their 401(k) retirement accounts and 529 college savings plans to make a down payment on a home, just days after his own administration said the idea would be incorporated into an executive order on housing affordability.

“Other people like it. … One of the reasons I don’t like it is that their 401(k)s are doing so well,” Trump said aboard Air Force One on his return trip from the World Economic Forum in Davos, Switzerland, according to news and social media reports from several news outlets that had correspondents on the plane. “I like keeping their 401(k)s in great shape. I like keeping their 401(k)s. And I’m not a huge fan of that, putting down a deposit.”

It was an abrupt reversal of remarks made on January 16 by Kevin Hassett, director of the National Economic Council, who said the idea was still being worked out but would differ from currently available options. Hassett had said the proposal would be presented during Trump’s speech in Davos, but Trump’s Tuesday remarks avoided the topic and instead focused on Greenland and his effort to ban institutional investors from purchasing single family homes, as detailed in an executive order published the same day.

Initial Proposal

The January 20 executive order stated that homeownership is “increasingly out of reach,” but the U.S. homeownership rate was 65.3% in the third quarter of 2025, similar to U.S. Census Bureau data from 2000. Fewer than half owned homes in 1900.

As for home purchases, currently, first-time home buyers younger than 59.5 can withdraw up to $10,000 from an individual retirement account without penalty to use toward the purchase of a home. However, 401(k)s and other employer-sponsored plans do not offer this exemption—early withdrawals incur a 10% penalty, regardless of purpose.

The Trump administration’s initial plan sought to waive or reduce penalties and other restrictions on early withdrawals for first-time home-buyers, according to reports earlier this week from the American Retirement Association and others.

The proposal has already sparked intense debate among retirement and savings experts, who say that any expansion of penalty-free access to retirement accounts could increase “leakage” from long-term savings; the expansion of penalty-free access could complicate the tax laws that govern workplace plans; and any changes to the penalties would likely require legislation.

“A proposal that would permit employees to withdraw savings, penalty-free, from their 401(k) to make a down payment on a house raises questions,” says Mark Iwry, a former senior adviser to the Department of the Treasury and now a senior fellow at the Brookings Institution. “Only Congress—not the president, Treasury or the IRS—has authority to change the [tax] code.”

Though any changes to the penalties for early withdrawals would likely require Congress to change the law, the SECURE [Setting Every Community Up for Retirement Enhancement] Act of 2019 and the SECURE 2.0 Act of 2022 made it easier for participants to withdraw from their 401(k) accounts, such as allowing penalty-free withdrawals for people dealing with terminal illness and for recovery from federally declared disasters.

Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute, says expanded access to retirement accounts could help some households build long-term stability by shifting savings into home equity, but warned the trade-offs are complex, especially since it could lead to more 401(k) leakage.

“It could be beneficial, because you bought a home and maybe you get it paid off if you buy it sooner,” Copeland says. “But the problem is: It would be good to keep that money in the retirement account if at all possible.”

Copeland adds that easier plan withdrawals could discourage workers from saving elsewhere for a down payment and increase the risk that retirement balances are permanently reduced.

Legal experts echo those concerns, noting that 401(k) plans already permit loans that must be repaid, helping prevent permanent losses.

“With loans, at least you’re paying yourself back,” says Rosie Zaklad, a principal in Groom Law Group. “Whereas withdrawal—once it’s gone, you can’t put the money back.”

Weighing 529 Plan Withdrawals

The Trump administration was also reportedly considering allowing the use of money in 529 college savings accounts, which traditionally can only be used tax-free for education, to be used for home purchases.

Withdrawals from 529 plans are free of penalty when used for qualified education expenses, which include:

• Higher education: tuition, room and board, books, and computers;
• K-12 tuition: up to $10,000 per year;
• Apprenticeships and credentials: post-secondary vocational programs; and
• Student loan repayment: up to a $10,000 lifetime limit.

The SECURE 2.0 Act of 2022 also allowed a tax-free rollover of up to a lifetime limit of $35,000 into a Roth IRA from a 529 plan maintained for at least 15 years by the same beneficiary.

Currently, the average 529 account holds about $27,434, with a median balance near $9,500, according to ISS Market Intelligence and the College Savings Foundation. About 15% of U.S. households have a 529 plan, and average balances across state plans range from roughly $5,881 to $65,138. ISS Market Intelligence, like PLANADVISER, is owned by ISS STOXX.

“The potential expansion of 529 qualified expenses to the down payment on a home would provide support to a high percentage of families,” says Paul Curley, executive director of 529 research at ISS Market Intelligence. “Public policy that encourages families to develop and execute savings habits is a positive for 529 and 401(k) providers, stakeholders and families.”

But education-savings advocates say the change could blur the purpose of accounts meant to fund schooling.

“In theory, you can already take money out of a 529 for any purpose, but you pay the taxes and the penalty,” says Catherine Seat, director of the College Savings Plans Network. “Waiving the penalty would really change the nature of what a 529 account is intended to be.”

Seat adds that state laws governing 529 plans might also need to be updated before participants could benefit from any federal changes.

Several experts said the administration may try to craft an order that expands access within existing regulatory authority, avoiding the need for congressional approval, though the limits of that approach are uncertain.

“I don’t understand how you would create a new, penalty-free distribution without passing a new law,” Zaklad says. “But if there is something, they’ll figure out a way to do it.”