Would you tap into retirement savings to buy a home?

Mar 19, 2024, 6:00 AM | Updated: 11:49 am

retirement home...

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SALT LAKE CITY —  Mortgage rates are rising along with the price of a home. This reality has some potential buyers asking themselves if they’re willing to dip into retirement savings to buy their once-in-a-lifetime home.

And it looks like at least some people, are going for it. Younger homeowners were more likely to have used retirement savings for a down payment to buy a home according to Bankrate’s recent Down Payment Survey.


Bankrate reports that 16% of Generation Z (ages 18-27) and 12% of millennials (ages 28-44) have used retirement savings to pay for a down payment. While 7% percent of Generation X (ages 45-59) and 8%  of Baby Boomers (ages 60-78) had done similarly.

Overall, the survey found 9% of Americans have dipped into their retirement savings to buy their home.

Things to consider before breaking into your retirement bank

A Utah financial expert said one thing to consider is whether the withdrawal is a loan or a distribution from a 401(k). DMBA Certified Financial Planner Shane Stewart said that if it’s the latter, the IRS usually assesses a 10% tax as an early distribution penalty for those younger than 59 1/2.

Additionally, the borrower must pay income tax on the additional income. Stewart estimates that tax to be between 15% and 20%, depending on your tax bracket.

If it’s a loan, you have to repay it, with interest, he said.

“But it is putting you behind, [and your] future self will not be happy with you for slowing the growth of your 401(k) contributions by taking out on a loan,” Stewart said.

Set up an account for spending on big-ticket items

Stewart said he wasn’t surprised almost 10% have used retirement savings to buy a home.

“(Because) that’s where most Americans save is in a 401(k),” he said. A better option is to set up an emergency savings account through an employer, Stewart said.

“That’s a better tool. If you’re using your 401(k) … to save for anything in the current here and now, like a home, it’s like using a screwdriver to hammer in a nail. It’ll work, but you’ve got the wrong tool,” he said.

In the example of an emergency savings account, Stewart said the money comes from your paycheck and is deposited in a workplace savings account, like a 401(k).

The savings build up automatically, each deposit a step closer to home ownership. 

“Homeownership is not only the American dream, but it’s a great asset once you own that home,” Stewart said, “and a lot of people feel like they deserve that and want that. It just needs to be the right tool to do so.”

If you decide to withdraw from your 401(k)

If you are set on withdrawing from your 401(k), be aware of the financial implications going forward, he advised. For a loan, know beforehand the size of the repayments, including interest, from your paycheck.

“Can you even afford that payment coming out of your paycheck because it will come out before you receive your net paycheck,” he warned. “So just pay attention to the numbers and make sure you know what you’re getting into before you make that change.”

Related: Utah will loan first-time homebuyers $20,000 for new homes


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Would you tap into retirement savings to buy a home?