On January 23, 2026, U.S. Representative John McGuire (VA-05) introduced new legislation aimed at removing one of the biggest barriers to homeownership: access to upfront cash. The proposed Home Savings Act would allow Americans to tap into their retirement savings—without early withdrawal penalties—when those funds are used for a home purchase.
For many first-time buyers and younger families, saving for a down payment or closing costs has become increasingly difficult amid rising housing prices, high interest rates, and inflation. This bill seeks to provide flexibility by allowing retirement assets to play a role in achieving homeownership.
“For many, owning a home is the American dream but it’s been out of reach for far too long,” said Congressman McGuire. “Too many Americans are becoming lifelong renters. This bill will pave the way for removing financial barriers to home ownership.”
What Is the Home Savings Act?
The Home Savings Act proposes amendments to the Internal Revenue Code of 1986 to permit penalty-free retirement plan distributions when the funds are used for:
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A down payment, or
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Closing costs
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Related to the purchase of a principal residence
Under current law, most retirement plan distributions taken before age 59½ are subject to a 10% early-withdrawal penalty (in addition to income tax). This Act would remove that penalty for qualifying home-purchase withdrawals.
Retirement Accounts Covered Under the Act
The proposed legislation applies broadly across several types of retirement plans, including:
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401(k) and other defined contribution plans including a solo 401k
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403(b) annuity plans
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457(b) governmental plans
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Individual Retirement Accounts (IRAs)
The bill coordinates these rules across plan types to ensure consistent treatment, preventing taxpayers from being penalized simply because their retirement savings are held in different vehicles.
Helping Family Members Buy a Home
One of the most notable features of the Home Savings Act is its treatment of family assistance.
The Act allows an individual to:
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Take a penalty-free distribution from a retirement account, and
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Gift those funds to an eligible relative, provided the money is used for a down payment or closing costs on that relative’s primary residence.
Eligible relatives include:
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A spouse
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Children or grandchildren
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Parents or grandparents (including those of a spouse)
Importantly, these transfers would not be treated as taxable gifts, meaning they would be exempt from federal gift tax rules when used for qualified housing purposes
Time Limits and Effective Dates
The Home Savings Act is designed as a temporary relief measure, not a permanent change.
Key timing rules include:
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The Act would apply to distributions made in taxable years beginning after December 31, 2025
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Penalty-free treatment would be available for up to five years
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The provision would sunset after December 31, 2030
After that date, distributions would revert to existing retirement withdrawal rules unless Congress extends or renews the program.
Why This Matters
If enacted, the Home Savings Act could significantly reshape how families think about retirement and homeownership planning:
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Young buyers may access funds sooner without punitive penalties
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Parents and grandparents can help the next generation buy a home more efficiently
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Families can reduce years of renting and begin building long-term equity
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Retirement funds become more flexible tools for major life milestones
As housing affordability continues to challenge Americans nationwide, this legislation reflects a broader policy shift toward using retirement savings more strategically—while still preserving their long-term purpose.
Final Thoughts
The Home Savings Act is still a proposed bill, not current law. However, it highlights growing bipartisan concern over housing affordability and the rigidity of existing retirement withdrawal rules.
If passed, the Act could open new planning opportunities for individuals, families, and financial professionals—especially when coordinated with tax-efficient retirement strategies.
As always, anyone considering retirement plan distributions for home purchases should consult with a qualified tax or retirement professional to understand the income-tax implications and long-term impact on retirement security.
