Have you heard the 401(k) news?

Trump wants to let people use their retirement funds for down payments without penalties or taxes.

That's right: you might be able to dip into that 401(k) to buy a house… without the usual 10% penalty and income tax hit.

But is that actually a smart move? Is it worth stunting your retirement to buy a house today?

Or will that decision cost you hundreds of thousands of dollars in the long run?

Here's what most people don't realize: This proposal doesn't solve the actual housing problem. It just shifts money from one pocket to another. And when you run the real numbers, the math is brutal… taking $30,000 from your 401(k) today could cost you over $200,000 by retirement.

In today's edition of Dinner Table Discussions:

✅ What Trump's 401(k) proposal actually means
✅ The real math: $30K today vs. $300K at retirement
✅ Why this doesn't fix the housing crisis (and what would)
✅ When it might actually make sense to do this

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So, last week, Trump made an announcement (about an upcoming announcement) about enabling people to use their 401(k)s for down payments.

Now, technically, you can already do this, but you face a steep 10% penalty for withdrawing from your 401(k) early on top of normal income taxes on the money you withdraw.

The idea behind what Trump’s talking about is to do away with the penalty and the taxes to help would-be homeowners… well, own homes.

Seems great! It makes it easier for people to buy homes, right? Right...?

Well, yes and no. We’ll explain that in a bit, but first: Will your money grow more over 30 years in your home or in your 401(k)?

So, dipping into your long-term retirement investments to make a home purchase today: does it make sense?

Our answer: probably not, unless your 401(k) is absolutely loaded OR you want a home at all costs.

Why? Well, it’s really just the math.

Here’s the defining question: Will your money appreciate more over the next 30 years in your 401(k) or in a home?

Let’s say you want to take $30,000 out of your 401(k) today and use it for a down payment. Here’s how it would perform over the next three decades compared to leaving it in your retirement account:

Home values historically appreciate about 3-4% annually. Let's use 3.8% (the higher end of the national average).

$30,000 growing at 3.8% for 30 years = $91,842

Not bad. Your down payment contribution grew to nearly $92,000 in home equity.

The S&P 500 has historically returned about 10% annually, but let's be conservative and use 5-8% for typical 401(k) returns.

$30,000 growing at 5% for 30 years = $129,658

$30,000 growing at 8% for 30 years = $301,880

Let that sink in. At a modest 8% return (perfectly achievable with a simple S&P 500 index fund), that $30,000 becomes over $300,000 by retirement.

That’s over 3x more money if you leave the $30,000 in your 401(k).

Another way to look at it: if you take the money out of the account in this scenario, you’re losing $210,000.

Here's what frustrates us about proposals like this: They don't address the actual problem.

The housing crisis has one root cause: We don't have enough houses.

And none of the proposed fixes have addressed that. As a matter of fact, we’ll cover the recent attempts at fixing housing below.

See what we mean?

None of them actually add more houses to the market.

That’s the main issue here. The way to make houses more affordable is not any of these artificial means, it’s simply by building more houses! Supply and demand and all that.

Don’t believe it? Freddie Mac estimates that there’s currently a housing shortage of 3.7 million homes. That’s on the low end. Zillow says it’s over 5 million homes!

Now, we don’t think that the White House is oblivious to this issue. It’s a very complex problem, and there are zoning laws that prevent more houses from being built. Not a cut and dry situation by any means, so we get that they’re trying other routes for solutions. But hopefully this helps you understand a bit more about the situation if you didn’t know.

All of that aside… are there any cases where dipping into your 401(k) does make sense?

Of course, there are some cases where it might make sense for you to use your 401(k) for a down payment:

Option number 1 above is obviously the better position to be in, but we also understand that home ownership is some people’s top goal in life. So we understand that some people might make that decision even if it would lead to lower retirement savings and investments.

Well, this suggestion isn’t fun, but it works:

If you don’t want to use your 401(k) for a down payment, but you also don’t have the money for a down payment yet, we suggest you start cutting expenses, saving everything you can, and landing on a house price range that’s manageable for your current income and timeframe.

Also, we highly suggest putting your down payment savings in guaranteed investment options like a high-yield savings account or government bonds. There’s no reason why your down payment savings shouldn’t earn some extra money on themselves while you save!

It isn’t glorious, but a simple budget and a simple plan can lead to extraordinary progress toward a goal like home ownership.

So, overall we don’t love the option of taking money out of your retirement account because it hurts your wealth-building ability in the long run. Even if owning a home feels like wealth in the short term.

However, we know that some people have more than enough in their 401(k)s to justify this. There are also those who value home ownership above all else. And although we would do things differently, we understand and salute you!

Cheers to getting 1% better each week! 🥂

We’d love to hear about your story. It could help someone else along in their own process!
Just hit reply and share.

Thanks for reading,
—Your friends @ Future Funders 🍽️

P.S. Forward this to a friend who’s saving for a down payment 😁