White House economic adviser Kevin Hassett stated on Friday, January 16, that the Trump administration is pushing a proposal to permit American housing investors to use money from their 401(k) retirement plans to make down payments on homes.
Hassett told Fox Business Network that President Donald Trump “will put the final plan out in Davos next week.”
Read more: Trump threatens tariffs on countries opposing US claim on Greenland
Proposal and policy details
According to Hassett, the proposal is still being finalised.
The administration is seeking “a simple” process that would allow 401(k) withdrawals for housing without significantly eroding long-term retirement savings.
He said, “Suppose that you put 10% down on a home, and then you take 10% of the equity of the home and put it in as an asset in your 401(k). Then your 401(k) will grow over time.”
The Internal Revenue Service(IRS) explains that most retirement plan distributions, including those from 401(k) plans, are subject to income tax and potentially 10% additional tax if taken before age 59 and a half, unless a specific exception applies.
IRS also clarifies that the first-time homebuyer exception applies to Individual Retirement Accounts (IRAs), but the same is not extended to 401(k) plans.
Read more: Indian woman shares unseen struggles of maintaining a big house in US
What does Trump plan for home owning in America?
The anticipated proposal comes as Trump, who ran on a platform of a speedy solution to rising prices for American housing investors, faces economic challenges a year after taking office and ahead of the midterm election in November.
Due to high mortgage rates and high property prices, which have discouraged many potential purchasers and delayed market activity, US housing affordability in particular has continued to be a major concern.
In an effort to lower mortgage rates, Trump has made several proposals in recent weeks.
Trump has prohibited institutional investors from purchasing single-family homes and directed the Federal Housing Finance Agency to buy $200 billion in bonds issued by mortgage finance behemoths Fannie Mae and Freddie Mac.
Hassett said, “The basic idea is that if you get the spread down on the interest rate for mortgages.”
Additionally, he has consistently urged the Federal Reserve to cut its benchmark rates.
According to Hassett, the government has been in discussions with bank executives about how to meet the borrowing needs of people who are on the periphery of the financial system.
However, large financial companies that provide credit cards fiercely opposed Trump’s proposal last week to cap credit card interest rates at 10%.