Can I Use My 401(k) to Buy a House?

401(k) Withdrawals for Home Buyers: What’s Changed in 2026

With home prices and interest rates still making home affordability tough, lawmakers are once again debating whether Americans should be allowed to use retirement savings to buy a home.

In early 2026, members of Congress introduced proposals like the Home Savings Act, which would allow penalty-free (and in some cases tax-free) 401(k) withdrawals for down payments and closing costs on a primary home. While said he’s not a fan of this idea, President Trump has supported other efforts to improve housing affordability—like reducing competition from large buyers and lowering mortgage rates through bond purchases.

For now, nothing has changed.

Under current law, most 401(k) withdrawals before age 59 1/2 are still subject to income taxes plus a 10% early-withdrawal penalty. Some plans allow loans or hardship withdrawals, but those options come with risks, including lost investment growth and added pressure if your job situation changes.

That’s why the real question for home buyers isn’t “Can I use my 401(k)?”—it’s “Should I?”

Here’s the truth: Your retirement savings are not a house fund. Before touching your 401(k), you need to understand the true cost of early withdrawals, learn about smarter ways to save for a down payment, and see how buying a home fits into your overall financial plan.

Let’s break down how 401(k) withdrawals work today—and why stealing from your retirement to buy a house is not a smart move.

How Can I Use My 401(k) to Purchase a Home?

Ways People Try to Use a 401(k) to Buy a House

There are two ways to use your 401(k) to buy a house: early withdrawal or a loan.

Early or Hardship Withdrawal

An early withdrawal is when you take money out of your 401(k) before you reach retirement age—which the IRS has determined to be 59 1/2 years of age. It’s like withdrawing money from your bank account . . . except it’s much more complicated and expensive.

Most plans will allow you to take money out of your 401(k) for what’s called a hardship withdrawal. That means you have to prove to your employer and your 401(k) plan manager that you need the money for something truly financially necessary, like:

• Medical expenses
• Funeral costs
• Down payments

But for some plans, putting a down payment on a house doesn’t qualify as a hardship. And the IRS won’t see your situation as a hardship if you have other ways of paying for it, like money from a spouse or child.¹ It all depends on your employer’s 401(k) rules.

But even if you’re allowed to take the money out of your 401(k) to buy a house, that’s not the end . . . not by a long shot. There are fees and taxes involved, and they’re pretty hefty.

The 10% Early-Withdrawal Penalty Fee

If you take money out of your 401(k) before you’re 59 1/2, you’ll be hit with a 10% early-withdrawal penalty. There are exceptions, but they’re very specific (death, permanent disability, dividing assets after divorce, etc.)—and buying a house isn’t one of them.² But don’t worry—it gets better . . . for the government.

The 20% Tax on 401(k) Withdrawals

Now we get into income taxes. That’s right—everyone’s favorite topic. You might remember that when you and your employer put money into your 401(k), it was deducted from your paycheck before taxes so the money could grow tax-free—unless you have a Roth 401(k), where the money is taken out after taxes.

It’s a really great system . . . if you leave the money in your 401(k). But when you take money out of your 401(k), it’s subject to those old reliable federal and (depending on your location) state income taxes. There’s a mandatory 20% federal tax withholding on early 401(k) withdrawals right off the bat.³

So, let’s say you want to take $80,000 out of your 401(k) to make a 20% down payment on a $400,000 home. You might feel like you found a shortcut to homeownership by taking money out of your 401(k). But $24,000 of that $80,000 will get eaten up in taxes and penalties before you can even spend it. Poof! You’ll have to take even more out of your 401(k) if you still want to put 20% down.

Immediate Cost of an Early 401(k) Withdrawal

And by the way, depending on your annual income, the amount you withdraw, and your state’s tax rates, your giant withdrawal to make that down payment will most likely bump you up into the next tax bracket (maybe even two), which means a higher tax bill for you for the year.

401(k) Loan

The second way to use your 401(k) to buy a house is even worse than the first: a 401(k) loan. It’s debt—debt made against yourself and your future. It’s such a bad idea that most 401(k) plans don’t even allow you to take out a loan.

With a 401(k) loan, the IRS limits how much you can borrow for a down payment: up to $50,000 or half the amount you have in your 401(k) account, whichever is less.⁴ And if you use the loan to buy your house, your plan may let you stretch the repayment period beyond the standard five years—keeping you in debt longer and putting your retirement at risk . . . with interest, of course.⁵

On the surface, a loan might strike you as a smarter way to go. You’re borrowing from yourself, so the interest you pay essentially goes back to you and not some bank. So long as you keep making payments, you won’t have any penalties or taxes to deal with.

But guess what? It’s not the smart way to go. In fact, it’s pretty stupid.

For one thing, that 5–7% interest you’ll be paying yourself is nowhere close to the average long-term return of 10–12% you could get if you left your money in your 401(k) in good growth stock mutual funds. Why in the world would you trade 10–12% for 5–7%? That seems nuts, right?

But here’s something even nuttier. If you get fired or laid off or if you leave your job before you pay off the loan, you’ll have to pay the balance in full before the federal tax deadline the following year (which we all know is on or around April 15). If you don’t, the government will consider the loan an early withdrawal on your 401(k), and all the taxes and fees you tried to avoid by taking out the loan in the first place will kick in.⁶ That means as long as you have that 401(k) loan over your head, there’s no freedom to leave your company if, let’s say, your boss is a jerk or you’d just like to move to a more tax-friendly state.

And—hello!—a loan is nothing but big, fat debt. And debt is dumb. Don’t risk your retirement nest egg over a stupid debt that will take you years to pay off.

Some people might tell you that a loan like this is “good debt.” You’re investing in your future home, after all. Well, we’re here to tell you there’s no such thing as good debt. Debt robs you of your greatest wealth-building tool: your income. And you can’t use it to build wealth if it’s tied up in debt payments.

Should I Use My 401(k) to Buy a House?

Using money from a 401(k) to buy a house is just a bad idea. Sure, it’s possible to do. But just because you can do something doesn’t mean you should. And this idea definitely goes in the shouldn’t category.

First, if you’re so strapped for money while saving for a home down payment that you need to borrow from your 401(k), you’re not ready to be a homeowner. Think about it: After closing on a house, homeowners need margin in their budget to cover the costs that come with owning a home like mortgage payments, higher utility bills, and home maintenance.

On top of that, pulling money out of your 401(k) means stealing from your future retirement in more ways than one. For example, an early 401(k) withdrawal comes with hefty penalty fees and taxes. In fact, you could lose a third of your nest egg before you even get to spend it!

Even if laws change and you’re allowed to take money out of your 401(k) without penalties, an early withdrawal will still cause damage: You’d lose the long-term growth on the money you stashed away for your retirement. Compound growth is a wonderful thing. It’s what turns a few thousand dollars’ worth of contributions from you and your employer into millions over time. Taking that money out of your 401(k) means you’re unplugging it from that potential. And you’ll lose out on some serious money in the long run.

Can I Slow Down My Investing to Buy a Home?

A lot of people might think they can have the best of both worlds by taking a little bit away from their investing each month to put toward a down payment. But that’s not a good idea either.

Remember, your income is your biggest wealth-building tool. If you break it up trying to accomplish two big goals at once—like saving for a down payment and investing for retirement—it’ll take a lot longer to reach them. Instead, focus on one step at a time.

If you really want to save up for a down payment (and are out of debt and have an emergency fund), we recommend stopping all investing and putting the full force of your income toward the down payment goal for a very short time. We’re talking one to two years at most. That’s it.

Buy a House the Right Way

Leave the money in your 401(k) alone until you’re actually ready to retire. The only time (italicized—so you know it’s important) it’s okay to consider taking money out of your 401(k) early is to avoid bankruptcy or foreclosure. But those are catastrophic financial situations. Wanting to get into a house faster isn’t the same thing.

So, what should you do if you’ve got house fever and no money for a down payment? Cool off, grab a cold shower, and take a real, honest look at where you are financially. You have plenty of time, and there are better ways to save up.

Get our free Saving for a Down Payment Guide.

Find a Real Estate Agent You Can Trust

Navigating this housing market can be tricky, so we recommend reaching out to a real estate agent you can trust. For a fast and easy way to find one, try our RamseyTrusted^® program. RamseyTrusted agents are experts in your local market and can help you find the house that suits your family’s needs and budget. And since they’re RamseyTrusted, you can feel confident they’ll serve you the Ramsey way.