You’re agonizing over a choice between buying a house versus maxing out retirement contributions—one you already know shouldn’t be a choice at all. Everyone says max out your 401(k) first. It’s practically financial scripture. But you’re also watching friends who bought houses three years ago build equity while your rent checks evaporate, and you’re starting to wonder if the conventional wisdom is costing you more than it’s saving.
The real tension here isn’t about math—it’s about timing. Retirement accounts reward patience. Real estate rewards entry points. And you can’t be in two places at once with the same dollar when you’re weighing buying a house versus maxing out retirement contributions.
Most financial advice treats these as separate decisions. Max your 401(k), then save for a house. But in practice, that sequencing can lock you out of homeownership entirely or push you into buying so late that the numbers stop working in your favor. The hidden cost of delay isn’t just foregone appreciation—it’s the compounding effect of higher future prices, larger loans, and fewer years to pay them off.
The case for prioritizing the house feels uncomfortable but rational
If you’re putting 15% of your income into a 401(k), you’re probably delaying your down payment by three to five years compared to someone who drops to the company match and redirects the rest. In a market that appreciates even modestly, that delay can cost you more than the tax savings you’re banking.
Consider the straightforward example: You’re earning $90,000 and contributing significantly to your 401(k) (the 2026 contribution limit is $23,500, though many people contribute less). That leaves you with less monthly cash flow to save for a down payment. If you drop to the 5% match instead, you free up roughly $1,200 per month. Over three years, that’s an extra $43,000 toward a house.
Meanwhile, the median home price in your area goes from $420,000 to $460,000. You’ve saved more in your 401(k), but you now need $12,000 more for the same down payment percentage, and your monthly mortgage payment is permanently higher. The tax-deferred growth in your retirement account doesn’t offset the fact that you’re financing a more expensive asset for 30 years.
This isn’t about abandoning retirement savings. It’s about recognizing that delaying a home purchase has its own set of compounding costs that often go unexamined. You’re trading the certainty of tax-advantaged growth for the uncertainty of future affordability.
The hidden costs of the 401(k)-first strategy
The standard advice assumes stable or slowly rising home prices. It also assumes you’ll eventually catch up on homeownership without penalty. Neither assumption holds in many markets.
When you max your 401(k) first, you’re betting that your income will rise fast enough to compensate for rising home prices and that interest rates won’t move against you. If either assumption breaks, you end up house-poor later or priced out entirely. The people who followed this advice in 2018 and planned to buy in 2021 discovered that home prices had jumped 30% and rates were starting to climb. Their disciplined retirement saving didn’t protect them from that.
There’s also the liquidity trap. Your 401(k) balance looks impressive on paper, but it’s largely inaccessible without consequences before you’re 59½. While first-time homebuyers can withdraw up to $10,000 from a traditional 401(k) penalty-free under certain conditions (though ordinary income taxes still apply), that’s rarely enough for a meaningful down payment in most markets. If you’re 32 and watching homeownership slip further out of reach each year, that balance isn’t helping you. You can’t borrow meaningfully against it for a down payment without triggering taxes and potentially penalties. You can’t use it to lock in today’s prices.
The opportunity cost here is time. Not just time in the market, but time living in the house. If you buy at 28 instead of 33, you get five extra years of principal paydown, five years of treating housing costs as equity instead of rent, and five years of potential appreciation. The 401(k) gains you’re chasing have to outpace all of that, plus the higher entry price you’ll face later.
The case for maxing the 401(k) anyway
Now the counterargument, which is real: Homeownership is expensive, illiquid, and often overrated as an investment. Maxing your 401(k) first gives you flexibility, tax savings, and compound growth without the operational headaches of maintaining a property.
If you’re in a high tax bracket, the immediate deduction from 401(k) contributions might save you $6,000 to $8,000 per year in taxes. That’s not trivial. And if your employer offers a generous match, you’re leaving free money on the table by contributing less. The standard financial planning advice exists for a reason: tax-deferred growth is powerful, and most people underestimate how much they’ll need in retirement.
There’s also the risk that you buy a house and then need to move. If your job situation is uncertain, or you’re in a city where you might not stay long-term, buying when you might move in 3-5 years exposes you to transaction costs and market risk that can easily wipe out any equity gains. In that scenario, maxing your 401(k) and staying flexible is clearly the better move.
And some markets genuinely don’t appreciate enough to justify the tradeoff. If you’re in a slow-growth area where home prices rise 2% annually, the 401(k) might outperform even after accounting for leverage and tax deductions. Real estate isn’t universally the better deal.
When the 401(k) wins, and when the house wins
This decision hinges on a few key variables: your income trajectory, your local market, your job stability, and how long you plan to stay.
The 401(k) wins when:
- Your income is rising quickly—say, you’re early in a high-growth career. You’ll be able to afford a larger down payment later without the delay costing you as much. Your future purchasing power increases faster than home prices.
- Your job requires mobility or you’re not sure where you’ll be in five years. Liquidity and flexibility matter more than locking in today’s prices if you might need to sell and move.
- You’re in a slow-appreciation market where real estate returns barely keep pace with inflation.
The house wins when:
- You’re in a stable job in a market with strong, consistent appreciation. The longer you wait, the more expensive your entry point becomes, and the less time you have to benefit from owning.
- You have reasonable confidence you’ll stay in the area for at least 7-10 years.
- Home prices in your target market are rising faster than 3-4% annually, making delay increasingly expensive.
If you’re already behind on retirement savings—if you’re 40 with a small 401(k) balance—this decision gets harder. You might need to split the difference: contribute enough to get the match, save aggressively for a house, and accept that you’ll need to catch up on retirement later. It’s not ideal, but neither is renting into your 50s or retiring with no equity.
The compromise that often makes the most sense
For most people, the answer isn’t binary. It’s reducing 401(k) contributions to the employer match while you save for a house, then ramping back up once you’ve bought.
This approach captures the free money from your employer, preserves some tax-advantaged growth, and prioritizes the down payment. You’re not abandoning retirement savings—you’re sequencing them strategically. Once you own a house and your monthly housing cost stabilizes, you can increase your 401(k) contributions again without the pressure of rising rent eating into your ability to save.
The math on this is straightforward. If your employer matches 5%, contribute 5% and redirect everything else toward the down payment. You’re still getting $4,500 annually in free match money on a $90,000 salary, and you’re accelerating your path to homeownership by two to three years in most cases.
That acceleration is worth more than the additional tax savings from maxing out. The earlier you buy, the more time you have to pay down the mortgage and benefit from appreciation. And once you’re in, you can adjust your retirement contributions without the looming pressure of an ever-increasing down payment target.
The mistake most people make is thinking this has to be a permanent choice. It doesn’t. You’re optimizing for sequencing, not giving up on one goal to achieve the other. The question of buying a house versus maxing out retirement contributions is really about timing and priority, not an either-or proposition.
The question you’re not asking yet
If you do prioritize the house and buy sooner, what happens to your mortgage once you own it? Should you accelerate payments or redirect that money back into your 401(k)? Because once you’re in, that’s the next decision waiting for you—and the answer might not be what you expect.