The news: A Trump administration plan is expected this week allowing consumers to withdraw 401(k) funds for down payments on homes without incurring penalties.

Zoom out:

• More than 10% of consumers are raiding their 401(k)s. Among plan participants, 13% had a loan outstanding at the end of 2024, with an average balance of $11,000, according to a Vanguard study. And 4.8% had initiated a hardship withdrawal.
• Under current rules, $10,000 of IRA funds can be withdrawn early by first-time homebuyers to use toward a down payment. According to a BankRate survey, 9% of current homeowners used retirement savings for a down payment on their first home.

In addition, an executive order signed in August expands the types of investments permitted in 401(k)s. This includes alternative assets like private equity, cryptocurrency, and real estate—which carry greater risk, higher fees, lower liquidity, and less transparency than traditional investments.

Implications for banks and wealth managers: Looser withdrawal rules and riskier asset-class choices for 401(k) plans may inhibit their original role as tax-advantaged savings vehicles: Even when consumers avoid an early withdrawal penalty, they lose the tax benefits on the withdrawn funds. And untested investment options may make the value of their investments and their ability to sell them less predictable. Consumers won’t be protected from financial decision-making that could imperil their long-term savings.

When retirement account rules loosen, banks and wealth managers can play an advisory role—high-touch or through digital solutions—to help consumers optimize financial decisions and avoid decisions not grounded in a lifelong financial plan. This positions providers as a trusted resource, deepening relationships and allowing them to offer alternative products and services that fit customers’ needs and circumstances.