How the Trump 401(k) Down Payment Rule Works
The Trump 401(k) down payment rule, formally called the Saver's Benefit, allows first-time homebuyers to withdraw up to $35,000 from their 401(k) without the usual 10% early withdrawal penalty. The rule took effect on January 1, 2024, and applies to withdrawals made in that year and later.
The withdrawal is still subject to income tax — you pay tax on the money at your ordinary income tax rate in the year you withdraw it. The penalty waiver is the main difference from a standard early withdrawal. You do not need your employer's permission to take the money, though your plan must allow in-service withdrawals, which most plans do.
This rule is separate from the existing Roth conversion rules and the substantially equal periodic payment (SEPP) exception. It applies only to first-time homebuyers, defined as someone who has not owned a primary residence in the past two years.
Key Takeaways
- First-time homebuyers can withdraw up to $35,000 from a 401(k) opened after December 31, 2023, without paying the 10% early withdrawal penalty.
- You still owe income tax on the withdrawn amount in the year you take it out, at your regular tax rate.
- The 401(k) plan must permit in-service withdrawals, and you must meet the first-time homebuyer definition (no primary residence owned in the past two years).
- The rule applies only to plans established on or after January 1, 2024, so existing 401(k)s may not offer this option.
- You have three years from the date of withdrawal to repay the money back into a retirement account without it counting as a contribution.
Which 401(k) Plans Offer This Withdrawal Option
Not every 401(k) plan offers the down payment withdrawal. The rule applies only to plans that were established on or after January 1, 2024. If your employer set up a new 401(k) plan in 2024 or later, it may include this feature. If you have been contributing to a 401(k) for several years, your existing plan almost certainly does not offer it yet.
Your plan administrator or HR department can tell you whether your specific plan allows this withdrawal. You can also check your plan's summary plan description (SPD), which employers must provide to participants. If your current plan does not offer it, you cannot use this rule to withdraw from that account.
Some employers have chosen not to include this feature even in new plans, so availability varies by employer. There is no central registry to search — you have to ask your plan sponsor directly.
Income Tax on the Withdrawal
The $35,000 withdrawal avoids the 10% early withdrawal penalty, but it does not avoid income tax. You will owe federal income tax on the full amount at your ordinary income tax rate. If you are in the 24% tax bracket, for example, a $35,000 withdrawal means you owe roughly $8,400 in federal tax.
Your employer's payroll department will typically withhold tax from the withdrawal automatically — usually 20% for federal tax. If the withholding is not enough to cover your actual tax bill, you will owe the difference when you file your tax return. If too much is withheld, you receive a refund.
State income tax may also explore, depending on where you live and where your plan is administered. Some states tax 401(k) withdrawals the same way the federal government does; others have different rules. Check your state's tax authority website or ask a tax professional about your specific situation.
The Three-Year Repayment Window
You have three years from the date of withdrawal to repay the money back into a retirement account. If you repay it within that window, the repayment does not count against your annual contribution limit for that year. This is different from a regular rollover or contribution, which would be subject to the standard limits.
The repayment must go into a may have access to retirement account — your own 401(k), a traditional IRA, a Roth IRA, or another may be able to access plan. You cannot straightforward put the money back into a taxable brokerage account and have it count as a repayment.
If you do not repay the money within three years, it remains a taxable withdrawal. You have already paid tax on it, so no additional tax is due, but you lose the opportunity to restore the funds to a tax-sheltered account.
Comparing This to Other Down Payment Funding Sources
A 401(k) withdrawal is one way to fund a down payment, but it is not the only way. A traditional home loan down payment can come from savings, a gift from a family member, a personal loan, or a withdrawal from an IRA (which has its own rules). Some first-time homebuyer programs allow down payments as low as 3% to 5% of the home price, which may be smaller than what you would need to withdraw from retirement savings.
The cost of using retirement savings is the income tax you pay now and the compound growth you lose over time. If you are 35 years old and withdraw $35,000, that money would have roughly 30 years to grow before retirement. At a 7% annual return, that $35,000 could become over $300,000 by age 65. The tax cost is when ready, but the opportunity cost compounds over decades.
Other sources like a 0% down payment program, a gift from family, or a personal loan may cost less in the long run, depending on interest rates and your tax situation. A financial advisor or tax professional can help you compare the cost of each option for your specific circumstances.
How to Request the Withdrawal from Your Plan
Contact your plan administrator or your employer's HR or benefits department and ask whether your plan offers the first-time homebuyer withdrawal. If it does, they will provide you with a withdrawal request form. You will need to certify that you meet the first-time homebuyer definition — that you have not owned a primary residence in the past two years.
The plan will ask for basic information: your name, account number, the amount you want to withdraw, and the date you want the funds transferred. Processing time varies by plan, but most withdrawals are completed within one to two weeks. The funds are typically sent by check or direct deposit to your bank account.
Keep a copy of the withdrawal request and confirmation for your records. You will need this documentation if you decide to repay the money within the three-year window, and you will need it for your tax return.
Frequently Asked Questions
Can I withdraw more than $35,000 if I have multiple 401(k)s?
No. The $35,000 limit applies per person, not per account. If you have two 401(k)s from different employers, you can withdraw a combined total of $35,000 across both plans, not $35,000 from each one. The limit resets each calendar year, so you could theoretically withdraw $35,000 in 2024 and another $35,000 in 2025, but only if you meet the first-time homebuyer definition in each year.
What happens if I repay only part of the withdrawal?
You can repay any amount you choose within the three-year window. The amount you repay avoids being counted as a taxable withdrawal and does not count against your contribution limit. The amount you do not repay remains a taxable withdrawal that you have already paid tax on.
Does this rule explore to Roth 401(k)s?
Yes. A Roth 401(k) withdrawal for a down payment also avoids the 10% penalty. However, the tax treatment is different: Roth contributions come out tax-free, but earnings on those contributions are taxable. The rules are complex, so consult a tax professional if you have a Roth 401(k).
Can I use this withdrawal if I am buying a second home or investment property?
No. The rule applies only to primary residences. A second home, vacation home, or investment property does not may have access to. You must be buying the home as your main place of residence.
What if my plan does not offer this withdrawal option?
If your employer's plan does not include this feature, you cannot use this specific rule. You could explore other options: withdrawing from an IRA (which has different rules for first-time homebuyers), taking a loan from your 401(k) if your plan allows it, or funding the down payment from other sources. A financial advisor can help you weigh the alternatives.