More Americans Tap 401(k)s for Immediate Needs as Hardship Withdrawals Rise

Updated March 14, 2026

More Americans are using their 401(k) retirement accounts to cover current expenses, with hardship withdrawals reaching all-time highs. This trend suggests increasing financial fragility among some retirement savers, despite overall improvements in retirement savings rates.

Hardship Withdrawals Surge

In 2025, 6% of Vanguard retirement savers took hardship withdrawals from their 401(k) accounts, marking an all-time high. This is a significant increase from 1.7% in 2020. Fidelity has also reported a spike in hardship withdrawals among its retirement savers. The median hardship withdrawal in 2025 totaled $1,900, according to Vanguard’s head of strategic retirement consulting, David Stinnett.

Automatic Enrollment Increases, But Doesn’t Eliminate Need for Withdrawals

Despite the rise in hardship withdrawals, overall retirement savings are improving. 61% of Vanguard retirement plans now automatically enroll new workers in 401(k)s, up from 54% in 2020. Auto-enrollment is known to increase savings rates, but it hasn’t prevented some individuals from needing to access those funds prematurely.

Why Are Savers Taking Hardship Withdrawals?

The most common reasons for hardship withdrawals are to prevent foreclosure or eviction. This indicates that some Americans are living paycheck to paycheck and lack sufficient savings outside of their retirement accounts to cover unexpected expenses.

Easier Access to 401(k) Funds

Federal law has become more permissive regarding access to retirement funds, contributing to the increase in hardship withdrawals. Since 2024, many retirement savers have been permitted to withdraw up to $1,000 a year to cover an urgent expense, with the saver defining what constitutes an emergency.

The Cost of Early Withdrawals

Financial experts caution against tapping into retirement funds unless absolutely necessary. “Raiding your 401(k) for quick cash essentially robs your future self of returns,” says Caleb Silver, editor in chief of Investopedia. Early withdrawals can hinder the long-term growth potential of retirement savings due to the loss of compounding returns.

Generally, withdrawals before age 59½ are subject to a 10% IRS penalty and are taxed as income. However, hardship withdrawals and other qualifying life events may be exempt from the penalty.

401(k) Hardship Withdrawal Rules

Some 401(k) plans allow hardship withdrawals without tax penalties. Rules have loosened in recent years, allowing savers to withdraw up to $1,000 for an urgent need annually. There’s a three-year waiting period for another withdrawal unless the money is repaid or new contributions are made to cover the balance.

Larger hardship distributions require an “immediate and heavy financial need” and are limited to the amount necessary to satisfy that need. The IRS provides guidance on qualifying scenarios, including:

• Medical expenses
• Costs for buying a home
• Postsecondary education expenses
• Payments to prevent eviction or foreclosure
• Funeral expenses
• Home repair costs

Qualified Early Withdrawals

Retirement savers may be allowed to develop early withdrawals from 401(k) accounts and IRAs without penalty for specific situations, including:

• Birth or adoption costs (up to $5,000 per child)
• Death or total and permanent disability
• Disaster recovery (up to $22,000 for a federally declared disaster)
• Qualified higher education expenses (IRAs only)
• Unreimbursed medical expenses exceeding 7.5% of adjusted gross income
• First-time home purchase (IRAs only, up to $10,000)

401(k) Loans as an Alternative

A 401(k) loan allows you to borrow money from your account and repay it with interest. You can typically borrow up to half of your vested balance, up to a maximum of $50,000, or $10,000 if your vested balance is less than that amount. Fidelity reports that 401(k) loans are not subject to tax or penalties, but interest is paid back into your account. However, leaving your job may require quick repayment of the loan.