Congressional interest in the rumored 401(k)-housing proposal remains, even though President Trump has backed away from it.

Freshman Rep. John McGuire (R-Va.) on Jan. 21 introduced the Home Savings Act (H.R. 7185) to remove penalties (and taxes) for withdrawing from a 401(k) account when the money is used for closing costs and down payments associated with purchasing a home.

“Too many Americans are becoming lifelong renters,” Rep. McGuire said in a release. “This bill will pave the way for removing financial barriers to home ownership. Family members aiding their relatives with closing costs and down payments aren’t just funding a house, but a home for generations to come. This Act is ending a cycle of throwing away money in renting and helping young people invest in their future.”

According to the release, the Home Savings Act would amend the Internal Revenue Code to permit penalty-free withdrawals from a 401(k) account for up to five years when the funds are used for a down payment or closing costs on a primary residence.

Notably, the legislation appears to not just apply to the 10%-early withdrawal penalty, but to regular ordinary tax treatment. The bill stipulates that the “gross income of an employee for any taxable year shall not include any distribution from a defined contribution plan of such employee to the extent that such distribution is used for a down payment or closing costs associated with acquiring a principal residence of the employee, or an eligible relative of the employee.”

For purposes of that section, the term “eligible relative” means the spouse of the employee or any child, grandchild, or ancestor the employee, or the spouse of the employee.

The Act would also allow an individual to make a penalty-free 401(k) withdrawal and gift those funds to a relative, exempt from gift tax, provided the relative uses the money for a down payment or closing costs on a primary residence.

If enacted as currently drafted, the legislation would apply to distributions made in tax years beginning after Dec. 31, 2025, but would not apply to distributions made in taxable years beginning after Dec. 31, 2030.

It’s unclear why the legislation has a five-year sunset date, but whether permanent or short-term, it would likely be very costly to implement, resulting in losses to government revenue and retirement security from the associated leakage.

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