Tapping Retirement Savings for Home Down Payments: Pros and Cons

Withdrawing from 401(k)s and IRAs can help fund a home purchase, but it comes with financial risks

Published on Mar. 7, 2026

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Raiding retirement savings to cover a home down payment can be tempting, especially as high inflation, mortgage rates, and home prices make buying a home increasingly difficult. However, there are significant tax penalties and long-term financial impacts to consider before tapping into 401(k)s, IRAs, and other retirement accounts. Experts advise carefully weighing the tradeoffs and consulting a financial planner before making any withdrawals or loans from retirement savings.

Why it matters

The COVID-19 pandemic and subsequent economic changes have made it increasingly challenging for many Americans to save up for a home down payment. While retirement accounts have seen strong growth in recent years, the median balances are still well below what's typically needed for a home purchase. Accessing these funds can provide a needed boost, but it also risks jeopardizing one's long-term financial security in retirement.

The details

Most 401(k) and IRA plans allow homebuyers to withdraw or borrow a portion of their retirement savings for a down payment, but this comes with tax penalties and other financial impacts. For 401(k) plans, the IRS limits loans to 50% of the vested account balance or $50,000, whichever is less. Hardship withdrawals from 401(k)s and IRA withdrawals for first-time homebuyers are also options, but these come with a 10% tax penalty if the saver is under 59 1/2 years old. Experts caution that tapping retirement funds can significantly delay one's ability to retire, as the borrowed or withdrawn amounts won't be earning investment returns over time.

  • As of December 2025, the median U.S. home down payment was $64,000.
  • In 2024-2025, 46% of homebuyers used savings to fund their down payment, including 59% of first-time buyers.

The players

Stephen Kates

A financial analyst at personal finance website Bankrate.

Fidelity Investments

A major financial services firm that manages 401(k) and IRA accounts.

Redfin

A real estate brokerage that analyzes housing market data.

National Association of Realtors

A trade association representing real estate professionals.

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What they’re saying

“Planning is the name of the game here. Running the numbers, having a solid understanding of what you can financially cover and financially manage is going to be really important before you step into this.”

— Stephen Kates, Financial Analyst (Bankrate)

“Most likely, somebody who's taking money out of the 401(k), they're going to have to retire later than they otherwise would have, especially if they're taking a relatively large portion of their balance.”

— Stephen Kates, Financial Analyst (Bankrate)

“The best option of the two that are available — either the loan or the hardship withdrawal — the loan is the more preferable option, because you can borrow from yourself, you're going to pay yourself back with interest.”

— Stephen Kates, Financial Analyst (Bankrate)

What’s next

Aspiring homebuyers should consult with a financial planner and their retirement plan sponsor before making any decisions about withdrawing or borrowing from their retirement accounts.

The takeaway

While tapping retirement savings can provide a needed boost for a home down payment, it comes with significant financial risks and tradeoffs that must be carefully considered. Homebuyers should explore all options, including savings, gifts, and loans, before resorting to withdrawals that could jeopardize their long-term financial security.