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For many people, saving for a down payment is the most challenging aspect of buying a home. With housing prices high and other financial obligations competing for your paycheck, it’s tempting to look for money in places you’ve already been saving. If you work for a school, nonprofit, or certain religious organization, your 403(b) retirement plan might seem like a possible source. But is tapping into it really an option—and is it a smart move?

The short answer — yes, you can use funds from a 403(b) plan to help with a down payment. The longer answer is that how you access those funds—and the financial trade-offs involved—makes all the difference.

What Exactly Is a 403(b)?

A 403(b) works much like a 401(k), except it’s designed for employees of public schools, nonprofits and churches. Money is deducted directly from your paycheck and grows tax-deferred until retirement. Employers may also make contributions, helping you build a sizable nest egg over time.

For 2025, the employee contribution limit is $23,500, while combined employee and employer contributions can go up to $70,000. Catch-up contributions add another layer— workers aged 50-59 or 64 and older can put away an extra $7,500. Those aged 60–63 can contribute up to $11,250 as a catch-up contribution. This means those 50 to 59 or 64 and older will be able to contribute up to $31,000 in 2025 and those 60 to 63 will be able to contribute up to $34,750 in 2025.

Long-term employees with 15 years of service may even qualify for an additional $3,000 annually, up to $15,000 total.

With these limits, it’s easy to see how a 403(b) can become one of your biggest financial assets—making it tempting to dip into when homeownership is in sight.

Withdrawing Funds for a Down Payment

If you’re 59½ or older, you can withdraw from your 403(b) without facing early withdrawal penalties. You’ll still owe income taxes on the amount, but you avoid the 10% penalty that applies to younger savers. For those nearing retirement who also want to buy a home, this can be a straightforward solution.

Hardship Withdrawals for Younger Savers

The rules get tougher if you’re under 59½. In limited situations, the IRS allows hardship withdrawals from a 403(b), and buying a primary residence can qualify. However, you’ll face both ordinary income taxes and the 10% early withdrawal penalty. That means losing a chunk of your savings to taxes before the money ever reaches your new home’s down payment.

Borrowing Instead of Withdrawing

Another option is taking out a 403(b) loan, if your plan allows it. Unlike a withdrawal, this doesn’t count as taxable income. You borrow against your account balance and then repay yourself—with interest—over time. This makes it less damaging than a withdrawal because the money stays tied to your retirement account. The risk is that if you leave your job or fail to pay it back, the outstanding balance can be treated as a distribution, bringing taxes and penalties back into play.

Should You Do It?

Using a 403(b) for a down payment can make homeownership possible sooner, but it comes with real trade-offs. Every dollar you take out is one less dollar compounding for your retirement. If the withdrawal triggers penalties and taxes, the cost becomes even higher. Loans are less damaging, but they still reduce your retirement balance in the short term.

Before making this move, it’s worth considering alternatives like saving longer, using other assets, or exploring down payment assistance programs. Buying a home may feel urgent, but retirement will come too—and you’ll want to make sure your future self has enough saved to enjoy it.