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Many Americans facing inflation, high mortgage rates and elevated home prices are looking for ways to gather the cash needed for a home down payment. One option is using retirement savings, but an Associated Press report said the choice can come with tradeoffs—especially once a household considers how taking money out can affect retirement readiness.
The report said most 401(k) and similar retirement plans allow homebuyers to withdraw or borrow a limited portion of their savings for a cash payment toward the purchase price. It also said the decision may bring “hefty tax penalties and other short- and long-term financial impacts” to consider, depending on how the funds are accessed and repaid. Fidelity Investments also provided account-balance figures in the report, saying the average 401(k) balance across 24.8 million accounts was $146,400 as of Dec. 31, and that the average IRA balance across 18.9 million accounts stood at $137,095 at the end of December.
The AP report placed the retirement-account question in the broader context of how down payments are assembled. It said that in the 12 months ending in June 2025, Realtor.com estimated the typical U.S. household took seven years to save for a down payment, and it cited figures from the National Association of Realtors that 46% of homebuyers between July 2024 and June 2025 relied on savings for their down payment, including 59% of first-time buyers. Within that same window, it said 6% of all homebuyers and 11% of first-time buyers tapped a 401(k) or pension for the down payment, and another 3% took funds from an IRA.
For people considering using a 401(k) loan, the report said the plan rules and repayment timelines can vary. It also said that the Internal Revenue Service places specific limits on what borrowers can access, writing that the IRS limits 401(k) loans to 50% of a borrower’s vested account balance or $50,000, whichever is less, and that savers with less than $10,000 in their plan can borrow the full amount if their plan sponsor allows it. The AP report emphasized that the repayment obligation means households must budget for loan payments on top of the typical costs of homeownership such as mortgage payments, insurance and taxes.
The report highlighted what happens if borrowers cannot repay. It said the biggest risk with a 401(k) loan is losing a job before paying it off, because the unpaid balance becomes a distribution that must be reported as taxable income, with a 10% additional tax unless the borrower is at least 59 years and six months old. It further said retirement savings take a hit if the loan is not repaid, since the money is no longer growing in the account.
The AP report also described a different pathway: hardship withdrawals. It said the IRS permits hardship withdrawals from a 401(k) for specific financial needs, including medical or funeral expenses, tuition, and buying a principal residence, and that this option is not a loan. It said that although a hardship withdrawal does not need to be repaid, it reduces retirement savings and can trigger a 10% tax penalty on funds for people more than six months away from turning 60; those funds are also taxable as regular income.
Stephen Kates, a financial analyst at Bankrate, was quoted in the AP report on how to think through the decision. He said, “Planning is the name of the game here,” adding that readers should run the numbers and understand what they can financially cover and manage before stepping into a home purchase. The report quoted Kates again as saying that when comparing loan and hardship-withdrawal options available in a 401(k), “the loan is the more preferable option,” because borrowers repay themselves with interest.
For IRA holders, the AP report said rules differ. It said IRAs do not allow loans but do permit withdrawals up to $10,000 without a 10% tax penalty for first-time homebuyers, if the money is used to buy a home. As with 401(k) withdrawals, the report said aspiring homebuyers should weigh the benefits of accessing funds against the impact on how much money they will have for living in retirement. The AP report concluded by advising people to consult a financial planner and their retirement plan sponsor before making a decision.