I’m 60 and want to buy my first home. Is it smart to tap my $2.5M 401(k) now, or should I consider other options first?

More Americans are entering their 60s as renters, and many are wondering whether they’ve waited too long to buy.

Imagine Mark, a 60-year-old who hopes to retire in about five years. He has built up a $2.5 million 401(k), but doesn’t have much savings in any other form of account.

Mark is tired of rising rents and likes the idea of settling into a “forever home.” A $400,000 purchase seems within reach — at least on paper. But without enough cash for a down payment, Mark is debating whether to tap his retirement account to buy the home outright, or to cover most of the cost.

It’s a tempting idea, but also a risky one. Taking a large withdrawal this close to retirement could mean a steep tax bill, smaller future investment growth, and less financial cushion later in life.

For older adults in similar situations, the question becomes: is buying a home worth cutting into the savings meant to fund the next few decades?

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Buying a home late in life isn’t unusual anymore — the median homebuyer in the U.S. is now 59, up from 39 in 2010. (1) But at the same time, the number of older renters is also on the rise.

Between 2013 and 2023, the number of renters aged 65 and older increased by 2.4 million, the largest jump of any age group. (2)

That shift reflects a common challenge for people like Mark: they want the stability of owning, but most of their wealth is tied up in tax-advantaged retirement accounts.

But pulling $400,000 out of his investments doesn’t mean he’ll have enough to buy a home. Because withdrawals count as taxable income, he could owe a significant amount in federal and state taxes, and a distribution that large could push him into a higher bracket for the year. (3)

There’s also the long-term impact. Money withdrawn from a retirement account stops compounding. Removing $400,000 today means losing not just the principal, but potentially hundreds of thousands in future growth — income he may need in his 70s and 80s.

A mortgage avoids that large tax hit, but comes with its own pressures. Borrowing at today’s rates means taking on a payment that will follow him into retirement. And owning adds costs renters often overlook: property taxes, insurance, repairs, and ongoing maintenance.