Local opinion: Raiding your retirement accounts to buy a house

In a column published in the Star on Jan. 24, Bloomberg columnist Allison Schrager advocates for changes in the tax laws to permit people to tap into their retirement savings to fund the down payment on a home. She aptly notes that for all the market gains many people experience in their IRAs and 401(k)’s, equity in real estate may provide an equally useful vehicle for growing wealth for retirement years.

As a real estate agent who sees people struggle to put together a down payment for their first home, I fully endorse the changes Ms. Schrager proposes. But, what’s left out of her piece is that under existing laws, there are ways for people to use those retirement funds to buy a home right now.

Suppose your retirement funds are in an IRA — then current law allows you to make a one-time withdrawal of up to $10,000 penalty free for a first home purchase. And that’s $10,000 each for a couple with two IRAs. Given that lenders today may be looking for as little as 3% down to buy a home, even without additional savings that $10,000 or $20,000 might be enough to put buyers into a pretty nice mid-priced home. And, while you will owe tax on the $10,000 you withdraw, depending on your other income that tax may be pretty minimal — and could easily be offset as your tax-irrelevant rent payments turn into partially tax-deductible mortgage payments.

And, if your retirement funds are in a 401(k), even better. While each 401(k) is subject to the rules that an employer establishes, in most cases, you can “borrow” up to $50,000 or 50% of your vested balance (whichever is less) from your own 401(k) and pay it back over five years with market-rate interest. But, here’s the really good news. The interest you’re paying isn’t going to some bank, it’s going to you as you replenish your own 401(k) account.

For decades, the "golden rule" of personal finance has been to leave your retirement accounts untouched. However, in the 2026 housing landscape, savvy buyers are challenging this dogma. While raiding a 401(k) or IRA carries risks (make sure to consult an accountant or other professional first), there are compelling strategic reasons why using retirement funds for a home down payment can actually accelerate your long-term wealth.

The immediate advantage is the transition from rent to equity. Every month’s rent check is pure loss of capital. By tapping a retirement account to secure a down payment, you effectively redirect your largest monthly expense toward an asset that will grow in value. For almost everyone, the forced savings of a monthly mortgage payment build a second "nest egg" in the form of home equity, which historically keeps pace with or exceeds inflation. And, in turn, often produces people’s biggest retirement asset.

Beyond that, using retirement funds to possibly reach a 20% down payment on a home eliminates Private Mortgage Insurance (PMI), which costs many borrowers hundreds of dollars a month. And a larger down payment often means a lower interest rate — another saving. When you factor in the tax-deductibility of mortgage interest, the "all-in" cost of the gradual appreciation of home ownership is often more efficient than having those funds in a volatile stock market.

Most people’s retirement accounts are heavily weighted toward paper assets like stocks and bonds. Tapping these funds to buy a home provides immediate diversification, since real estate is a "brick and mortar" hedge against fluctuations in the stock market. And frequently the annual appreciation of a home — leveraged by a mortgage — can produce a higher return on your initial investment (the down payment) than many mutual funds.

So, by all means, let’s change the laws to make it easier for people to use their own retirement funds to buy their first home. But let’s also be aware that the law right now gives many people the means to do just that.