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Could These 401( k) Overhauls Fix Housing And Retirement Gaps?
Washington has eyed major changes to America’ s 401( k) system to deal with Americans’ persistent financial problems. By Tracey Longo
ONE PROPOSAL WOULD ALLOW WORKERS TO TAP retirement savings early to buy their first home without penalties. The other would push 401( k) participants into annuities-based guaranteed lifetime income solutions by default, fundamentally changing the way retirees turn savings into paychecks.
Together, the ideas reflect a growing bipartisan acknowledgment of a hard truth: Millions of Americans are struggling to buy homes, and millions more are reaching retirement unprepared to live on what they have saved.
The first proposal is coming from the White House. In early
2026, it was reported that President Donald Trump was drafting an executive order that would allow Americans to withdraw money from retirement accounts and college savings plans to help them fund home purchases without paying early-withdrawal penalties. The plan was first reported by Politico.
The effort is part of a broader housing agenda aimed at boosting homeownership and easing affordability pressures driven by high prices, limited inventory and elevated mortgage rates. Trump has also vowed to curb purchases of single-family homes by large institutional investors, arguing that these buyers are pricing families out of the market.
“ The American dream of owning a home is increasingly out of reach,” Trump wrote on his platform Truth Social.“ It is for that reason, and much more, that I am immediately taking steps to ban large institutional investors from buying more single-family homes, and I will be calling on Congress to codify it.”
Using 401( k) Funds
Under current law, access to retirement savings before age 59½ is deliberately restricted. Early withdrawals from 401( k) plans generally trigger a 10 % penalty on top of ordinary income taxes. The rules are designed to prevent leakage and protect longterm retirement security.
There are limited exceptions. First-time home buyers may withdraw up to $ 10,000 penalty-free from an IRA, though income taxes still apply. But that exception does not extend to 401( k) plans. Participants instead may borrow against their accounts, usually up to the lesser of $ 50,000 or 50 % of their vested balance.
Any broad expansion of penalty-free withdrawals would require congressional action. The Internal Revenue Code tightly defines when penalties may be waived, including for emergency expenses, adoption costs and disaster-related losses.
The White House has acknowledged the idea is under review, but it has not confirmed a policy decision.
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