The Trump administration is proposing to allow Americans to take money out of their retirement funds without a penalty to make a down payment on a house, White House economic adviser Kevin Hassett said.
In an interview with Fox Business Network, Mr. Hassett said more details about the plan will be unveiled at the World Economic Forum in Davos, Switzerland, next week. He said the idea is part of “a whole bunch of proposals” President Trump will announce in Davos to address the high cost of housing.
“We’re going to allow people to take money out of their 401(k)s and use that for a downpayment,” Mr. Hasset said Friday.
When asked if he had concerns about Americans tapping their 401(k)s potentially hurting their savings during retirement, Mr. Hassett said the money taken out would eventually be returned as the stock market rises or the value of a house increases.
“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% down on a home, and then you take 10% 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,” he said.
“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,” Mr. Hasset said.
Currently, Americans cannot withdraw funds from a 401(k) for a first-time home purchase without paying a penalty. There is a first-time homebuyer exception allowing penalty-free withdrawals from IRAs, but it doesn’t apply to 401(k) plans.
Those who take a withdrawal before turning 59 and a half typically owe a 10% early withdrawal penalty plus taxes.
One strategy that is available to people with 401(k) accounts is to take a loan from the account rather than a withdrawal.
Mr. Hassett said the administration is still looking for “a simple” way to allow people to tap their funds without paying a penalty, but offered few specifics. He said Mr. Trump was still working “on the mechanics” of it.
The proposal comes as Mr. Trump seeks more ways to lower the cost of housing, which has become a critical midterm election issue.
In recent days, the president has proposed banning institutional investors from buying single-family homes and directed the federal government, through Fannie Mae and Freddie Mac, to buy up outstanding mortgage bonds.
