Tapping a 401(k) for homeownership is risky business, experts say

President Donald Trump has floated proposals to make it easier for Americans to pull from their 401(k) retirement accounts to buy a home — framing the idea as a way to boost homeownership and financial stability.

But financial experts say the strategy could undermine long-term financial security, particularly as housing costs rise and retirement savings gaps widen, according to a recent report from Realtor.com.

“Financially, the American dream should not be homeownership, but should be financial independence,” Robert Johnson, CEO of Economic Index Associates and a professor at Creighton University, said in the report.

“People fall prey to the stories of individuals realizing substantial gains by buying a home and selling it at a much higher price years down the road.”

He noted that nearly 29% of household wealth was tied to home equity in 2021, according to U.S. Census Bureau data. But he warned that housing wealth is illiquid and often inaccessible for medical bills or long-term care.

Early withdrawal problems

Experts cited in the report said pulling money from retirement accounts during prime compounding years can be especially damaging.

“Simply put, this is an absolutely terrible idea. People need to save more for retirement, not less,” Johnson said.

Only about 40% of Americans are on track to meet their retirement spending needs, and the average saver faces a $5,000 annual shortfall in retirement, according to a December 2025 Vanguard report.

“When you take money out of your 401(k) and the stock market to buy a house, you are effectively cutting your growth in half,” said Jay Zigmont, a certified financial planner and founder of Childfree Trust.

A hypothetical 35-year-old withdrawing $100,000 could receive about $66,000 after taxes and penalties while missing out on roughly $474,000 in potential growth over 30 years, assuming a 6% annual return.

Housing returns vs. market returns

While housing markets have seen surges — including nearly 19% price growth in early 2021 — such spikes are exceptions.

Historically, home prices grow around 3% to 5% annually, with forecasts suggesting about 2.2% growth in 2026. By comparison, the S&P 500 has averaged nearly 7% in inflation-adjusted returns since 1957, the report stated.

“No one knows for sure what home values will go up by or what the market will do over 10 years, but historical averages give you an idea of what would have happened in the past,” Zigmont said.

Withdrawing from a 401(k) also effectively delays retirement timelines.

“There aren’t any good options if one hasn’t saved enough for retirement,” Johnson said. “Once one gets to retirement age and hasn’t accumulated enough retirement savings, one only has two options left — continue working or accept a lower standard of living in retirement — and neither of those options are good.”

Experts also warned that owning a home does not guarantee financial security in later life, citing factors like long-term care, health care and home modifications.