Donald Trump is preparing to test one of the firmest taboos in American household finance: the separation between retirement savings and housing deposits. The US president is expected to use the Davos World Economic Forum to outline a proposal that would allow prospective buyers to draw on their 401(k) accounts to fund a down payment on a home.
The plan, trailed by the National Economic Council director Kevin Hassett, would mark a significant shift in how policymakers view the role of retirement assets. While the White House has yet to release formal details, the concept appears to rest on treating housing equity as a complement to long-term retirement wealth rather than a competing claim on savings.
Hassett offered a glimpse of the thinking behind the proposal during an appearance on Fox Business. “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.
The idea raises immediate questions around tax treatment, liquidity risk and behavioral incentives. Under current rules, withdrawals from 401(k) plans typically trigger taxes and penalties unless they meet narrow hardship criteria. The administration has not yet indicated whether the proposed mechanism would waive or defer those costs, or how housing assets would be valued and reported within retirement plans.
The initiative lands amid sustained concern about housing affordability and a broader political effort to reassure voters uneasy about the economy ahead of this year’s midterm elections. Home ownership has become harder to attain as prices and borrowing costs have risen, leaving younger households particularly exposed.
Economists remain divided on whether tapping retirement savings meaningfully addresses the structural constraints of housing supply and pricing. Daryl Fairweather, chief economist at Redfin, has argued that such a policy would do little to resolve the underlying affordability problem, while acknowledging its potential appeal to households struggling to assemble a deposit. “It doesn't really drift that far from the purpose of 401(k)s, which is to encourage people to save money for these big expenses that they may not have the discipline to save for,” she said.
Her caution, however, will resonate with advisors tasked with balancing near-term goals against long-term security. Allowing retirement balances to be diverted into a single, illiquid asset could amplify household vulnerability if property values fall. Fairweather warned that it would be “concerning if people were to start draining their 401(k)s in order to buy a home”, particularly if the asset later depreciates.
The retirement proposal sits alongside a flurry of housing-related interventions from the White House. Mr Trump has pledged to block large corporate investors from purchasing single-family homes, a move designed to ease competition for owner-occupiers, though analysts question how much such a ban would move prices. He has also instructed Fannie Mae and Freddie Mac to purchase $200 billion of mortgage-backed securities, arguing that increased demand for the bonds would lower borrowing costs.
Following that announcement, average rates on 30-year mortgages dipped below 6 per cent for the first time in nearly three years. “And that's not with the help of the Fed,” Mr Trump said during a speech in Michigan, drawing a contrast with the Federal Reserve’s indirect influence on mortgage pricing.
Hassett has pointed to the market’s initial reaction as evidence of success. “We've seen a pretty big reaction to the announcement, and I think that actually makes us all feel better, because the truth is that fewer people are buying homes right now than we've seen pretty much in my lifetime,” he said.
Others urge restraint, Andrew Samalin , principal at Samalin Wealth told InvestmentNews "Given that home ownership is a major source of wealth creation, any reasonable means of helping people to get a down payment is welcome. However, houses are users of cash. They’re consumers of cash. Retirement plans are generators of cash. To the degree that people take out funds from liquidity and from the generation of cash to be used for retirement expenses, I have concerns. To the degree that it helps a first-time home buyer establish themselves as an owner over a renter, I applaud that. So I would wait to hear some of the details and some of the potential options to unwind the distribution from the retirement account from the administration."
Whether Mr Trump’s proposal proves to be a durable reform or a political gesture, it is likely to sharpen the debate over what retirement savings are ultimately for — and how much risk households should be asked to bear along the way.
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