[Teknomadix]

Anybody who is a saving money in a 401(k) is essential investing.

After reading the article, it appears clear that the the administration advisers are saying the new housing plan would let buyers tap 401(k) funds for a home down payment without the usual early-withdrawal penalty. Germany has something very similar to this policy and it has been widely lauded as a success.

My take: For median-income households, the plan under discussion would let individuals pull money from a 401(k) for a home down payment withoutl penalty or taxes, helping buyers overcome the big upfront cost that often stands between them and their first home. Because 401(k) loans or withdrawals today generally trigger substantial taxes and penalties if you’re under 59.5 years old, this change could meaningfully reduce that barrier and broaden the access to homeownership immediately upon enactment. Beyond just tapping savings, the advisers are speculating the administration might include a mechanism to reinvest home equity back into the 401(k) retirement account over time, for example, by allowing a portion of home value growth to count as an asset inside the 401(k) so that the account “grows” alongside the house, offsetting retirement savings losses caused by the withdrawal. Those mechanics, like how much can be withdraw, whether there are caps or limits, how repayment would work, or whether it applies only to first-time buyers, are still being worked out and haven’t been finalized so Caveat emptor; this is speculation on my part based on the read. I like the idea and I'll be contacting my US state representatives with my endorsement and recommendations including the proposed first-time buyer restriction.

[al_borland]

My fear with tapping the 401k to fund purchases during one’s working years would be a bit hit to the money they actually have for retirement. Taking out $80k today, at a 7% rate of return, would be over $600k in 30 years.

If someone is in a great housing market, and is willing to downsize in retirement, maybe it works out, but there is luck mixed in there… along with personality and emotion. Your idea of rolling some equity into the 401k is an interesting one that may help quell some fears. Of course the devil is in the details, and if it requires some complicated work on the part of the buyer once the home value has grown, I can see a lot of people missing out on such a program.

[tim-tday]

Most people who need to do this live in a high cost of living area and the investment in a house increases at a higher rate than the stock market in those cities.

[yomby]

Depending on where you buy, those $80k can be rising at a little over 7% in appreciation over the 30 years too.