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Buying a home using retirement savings? Financial expert weighs in

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Nearly 1 in 10 American homeowners say they pulled money from their retirement savings to cover the down payment and closing costs associated with buying their house.

A recent survey by Bankrate found that 9% of homeowners withdrew from their 401(k) or other retirement account to make the purchase, and younger generations were most likely to do so. 

For sale sign in front of home in show

The Washington Post published a new report detailing how the nation’s top home builders are opting to build smaller homes than previously to account for the current housing crisis. (Reuters Photos)

Sixteen percent of Gen Z respondents (ages 18-27) and 12% of millennials (ages 28-43) reported taking money out of retirement savings to fund their down payment, compared to 7% of Gen Xers (ages 44-59) and 8% of baby boomers (ages 60-78). 

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But is it a smart financial move?

David Ragland, CEO of IRC Wealth and a certified financial planner, says “the 401(k) — or any retirement program — is the most powerful wealth building tool out there,” and he does not recommend withdrawing from those funds to buy a home.

He points to two major reasons for not pulling money from retirement funds. 

The first is that the saver will lose out on the growth they would have had if they kept the money in the fund over the long term, which would hurt young people much more than older generations.

A “For Rent” sign outside an apartment building in the East Village neighborhood of New York City on July 12, 2022. (Gabby Jones/Bloomberg via Getty Images / Getty Images)

The second-biggest downside is that the government takes a big chunk of the funds withdrawn from a retirement account.

Between federal and state taxes and a 10% penalty for a withdrawal, a person is looking at paying 40% on every dollar they take out, Ragland explained.

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To spell out the impact, he provided a hypothetical scenario of a 30-year-old who needs a $20,000 down payment and wants to take it from their retirement fund. Because of the penalties, an individual in that scenario would actually need to withdraw $33,000 from their retirement funds in order to cover the hit from the government.

However, if that 30-year-old left the $33,000 in their 401(k) rather than pulling it out, by the time that person is 85 years old, that amount of money would grow to $1.2 million, assuming the typical 7% rate of return.

“You’re not making a $30,000 decision, you’re making a $1.2 million decision,” Ragland said. “That’s why you don’t do it.”

Data table showing existing home-sales and other figures

A data table showing existing home sales, prices, mortgage rates and mortgage payments in January and February for the years 2019-2024. (Fox News / Fox News)

However, for those who have a retirement fund and do not have other means to come up with a down payment, Ragland offered an alternative option.

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He noted that those with a 401(k) are able to take a loan against those funds up to $50,000. That allows people to keep their funds in their retirement account while getting the down payment money they need, and avoiding any taxes or penalties.

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More Americans buy groceries with buy now, pay later loans

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People shop for produce at a Walmart in Rosemead, California, on April 11, 2025. 

Frederic J. Brown | Afp | Getty Images

A growing number of Americans are using buy now, pay later loans to buy groceries, and more people are paying those bills late, according to new Lending Tree data released Friday

The figures are the latest indicator that some consumers are cracking under the pressure of an uncertain economy and are having trouble affording essentials such as groceries as they contend with persistent inflation, high interest rates and concerns around tariffs

In a survey conducted April 2-3 of 2,000 U.S. consumers ages 18 to 79, around half reported having used buy now, pay later services. Of those consumers, 25% of respondents said they were using BNPL loans to buy groceries, up from 14% in 2024 and 21% in 2023, the firm said.

Meanwhile, 41% of respondents said they made a late payment on a BNPL loan in the past year, up from 34% in the year prior, the survey found.

Lending Tree’s chief consumer finance analyst, Matt Schulz, said that of those respondents who said they paid a BNPL bill late, most said it was by no more than a week or so.

“A lot of people are struggling and looking for ways to extend their budget,” Schulz said. “Inflation is still a problem. Interest rates are still really high. There’s a lot of uncertainty around tariffs and other economic issues, and it’s all going to add up to a lot of people looking for ways to extend their budget however they can.”

“For an awful lot of people, that’s going to mean leaning on buy now, pay later loans, for better or for worse,” he said. 

He stopped short of calling the results a recession indicator but said conditions are expected to decline further before they get better.  

“I do think it’s going to get worse, at least in the short term,” said Schulz. “I don’t know that there’s a whole lot of reason to expect these numbers to get better in the near term.”

The loans, which allow consumers to split up purchases into several smaller payments, are a popular alternative to credit cards because they often don’t charge interest. But consumers can see high fees if they pay late, and they can run into problems if they stack up multiple loans. In Lending Tree’s survey, 60% of BNPL users said they’ve had multiple loans at once, with nearly a fourth saying they have held three or more at once. 

“It’s just really important for people to be cautious when they use these things, because even though they can be a really good interest-free tool to help you kind of make it from one paycheck to the next, there’s also a lot of risk in mismanaging it,” said Schulz. “So people should tread lightly.” 

Lending Tree’s findings come after Billboard revealed that about 60% of general admission Coachella attendees funded their concert tickets with buy now, pay later loans, sparking a debate on the state of the economy and how consumers are using debt to keep up their lifestyles. A recent announcement from DoorDash that it would begin accepting BNPL financing from Klarna for food deliveries led to widespread mockery and jokes that Americans were struggling so much that they were now being forced to finance cheeseburgers and burritos.

Over the last few years, consumers have held up relatively well, even in the face of persistent inflation and high interest rates, because the job market was strong and wage growth had kept up with inflation — at least for some workers. 

Earlier this year, however, large companies including Walmart and Delta Airlines began warning that the dynamic had begun to shift and they were seeing cracks in demand, which was leading to worse-than-expected sales forecasts. 

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