A legislation proposal that would waive fines for home buyers who use 401(k) account withdrawals to pay for select housing costs was recently introduced in the House of Representatives.
U.S. Representative John McGuire presented the Home Savings Act on Jan. 23, in an effort to remove penalty fees on 401(k) withdrawals that pay for closing costs and down payments on home purchases.
The bill would amend the Internal Revenue Code of 1986 to permit penalty-free withdrawals for up to five years when used for down payments or closing costs on a primary residence.
“For many, owning a home is the American dream but it’s been out of reach for far too long,” said Congressman McGuire. “Too many Americans are becoming lifelong renters. This bill will pave the way for removing financial barriers to home ownership. Family members aiding their relatives with closing costs and down payments aren’t just funding a house, but a home for generations to come. This Act is ending a cycle of throwing away money in renting and helping young people invest in their future.”
The bill, which currently has no co-sponsors, is unlikely to make much movement in Congress as President Trump backpedaled on the idea following his return from the World Economic Forum in Davos. When asked about the proposal, Trump said he is not “a huge fan” of allowing 401(k) funds to be used for housing costs because “401(k)s are doing so well.”
“You know, 401(k)s are up 80, 90% in some cases,” Trump said. “The housing market is good, but the 401(k)s are doing much better than the housing market.”
While it’s true that savers saw a strong 2025 with market gains, Trump’s claim that 401(k) balances grew 80% to 90% remains unsubstantiated.
In fact, the latest research from Fidelity Investments found that average 401(k) balances grew 8% in Q2 2025, far less from the 80% to 90% percentage Trump previously touted.
Meanwhile, the current U.S. homeownership rate is 65.3%, as reported by the U.S. Census Bureau, with the average buyer needing an estimated seven years to afford a home down payment, according to Realtor.com.
Rep. McGuire’s bill has since been referred to the House Ways and Means Committee.