President Donald Trump has floated several controversial ideas to help make housing affordable again. But his latest pitch—allowing Americans to tap 401(k) plans and 529 education savings accounts without penalties to fund their down payments—could have lasting financial consequences even if it helps with some upfront homeownership costs.
According to a report from Politico, the Trump administration is drafting an executive order that would allow homebuyers to make penalty-free, tax-free withdrawals from 401(k) plans and 529 education savings accounts to use toward their down payments.
Existing IRS rules impose a 10% penalty (plus regular income tax) on early retirement account withdrawals before age 59 ½ (with some limited exceptions). You can take a penalty-free 401(k) loan for up to $50,000 or 50% of your vested account balance (whichever is less), but the amount has to be repaid (with interest) within a certain time frame. Currently, first-time homebuyers can tap up to $10,000 from traditional or Roth IRAs without penalty.
But Trump’s proposal—with clear guardrails—could change the game for those who want to buy a home and entice more people to contribute to their 401(k) plans, said Bobbi Rebell Kaufman, a certified financial planner and consumer finance expert with CardRates.com.
“I think this is a great idea because it increases flexibility, and when you have more flexibility, you are more likely to put more money in a 401(k) or a 529,” Kaufman said. “You’re effectively transferring it into another asset, so you’re not really spending it. You are using it to create another asset, to diversify your assets. That is a good use of it.”
Meanwhile, you may also get the benefit of an employer match as you put money into your 401(k), earning free money that you can then use to buy a home that will build equity you can tap later on if needed, Kaufman explained.
The drawback is that you’re losing out on compounded growth of the savings you tap early, but she emphasized that you’re not spending it; you’re investing it in real estate, which tends to grow in value over time.
Currently, 529 education savings accounts are earmarked specifically for tax-free withdrawals to pay education-related expenses only. Depending on how the Trump administration structures the withdrawal rules for 529s, parents could either tap the education savings accounts for their own home down payment—or even give leftover funds to their adult children to fund their own home down payment in the future, Kaufman said.
Trump mulls $200 billion GSE purchase of mortgage bonds to lower rates
Just days ago in a Truth Social post, Trump announced that he’s directing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities (MBSs) in an effort to lower mortgage rates.
However, this step could introduce more volatility and unnecessary risk to the mortgage credit market for “modest temporary tightening of mortgage-to-Treasury spreads”—costs that the GSEs and American taxpayers would have to bear, according to the Mortgage Bankers Association (MBA).
Housing experts have also warned that lowering mortgage rates and creating additional buyer demand without addressing the lack of affordable housing inventory could push prices up even higher. J.P. Morgan Private Bank estimates the U.S. housing stock is short 2.8 million units and it could take another 10 years to make up the shortfall.
By directing the GSEs to buy mortgage bonds to directly influence mortgage rates, Trump is getting around the purview of the Federal Reserve, and, in particular, Jerome Powell. Trump has long criticized Powell for not cutting its benchmark rates more aggressively in a tug-of-war of power over the central bank’s independence.
The MBS news had an immediate impact, pushing 30-year fixed mortgage rates briefly down to 5.99% on Friday from 6.21% the previous day, according to data from Mortgage News Daily. Rates have since landed solidly above 6%.
But according to Realtor.com® Senior Economist Jake Krimmel, it’s unlikely “this would move mortgage rates in a large and sustained way,” he said in a news article.
“Details are sparse but…a one-time infusion of $200 billion—or a series of smaller purchases that add up to it—are not likely to change the mortgage market’s long-term pricing,” Krimmel said.
More proposals floated without much clarity
Separately, Trump also posted on Truth Social about his goal to ban institutional investors from purchasing single-family homes. But large institutional investors own roughly 2% of the nation’s single-family rental housing stock, according to 2024 research from the Government Accountability Office (GAO).
While that share is small nationally, GAO estimates that institutional investors own a sizable share of single-family rental homes in key housing markets, such as Atlanta, Georgia (25%); Jacksonville, Florida (21%); Charlotte, North Carolina (18%); and Tampa, Florida (15%).
The Trump administration seems intent on coming up with a flurry of potential solutions to housing’s affordability crisis as mortgage rates sit north of 6% and home sales struggle to regain momentum. But, as the MBA notes, some of these proposals will require Congressional approval, and that will take time.
“We look forward to learning more about the Administration’s forthcoming proposals and have offered targeted recommendations to reduce housing costs,” MBA President and CEO Bob Broeksmit said in a statement.
Here’s a list of the recommendations Broeksmit said the MBA has offered so far to the Administration:
- Reducing FHA mortgage insurance premiums.
- Lowering GSE loan-level price adjustments for middle-income buyers and for those seeking rate-and-term refinances.
- Ending the tri-merge credit report requirement for lower-risk conventional loans.
- Reforming the mortgage loan originator compensation rule.
- Improving construction loan options.
- Enacting capital gains tax relief on the sale of a principal residence.
- Expanding condominium and multifamily lending through improved GSE and FHA policies.
While it’s unclear which of these latest proposals will make it to the cutting room floor and how far they’ll move the needle, housing affordability is a hot topic. And it’s one that will continue to stay in the headlines in a mid-term election year.
