401(k) Hardship Withdrawals Surge

The share of Americans dipping into workplace retirement plans for emergency cash rose again last year, with Vanguard reporting that 6% of workers in its 401(k) plans took a hardship withdrawal in 2025, up from 5% in 2024.

The increase, detailed in Vanguard's newly released annual look at retirement saving behavior, underscores how even as balances grow, many households still lack readily available savings when hit with sudden medical costs, housing problems, or other urgent expenses.

Hardship withdrawals are permitted under IRS rules when a worker has what the agency calls an "immediate and heavy financial need," and the IRS lists expenses that can qualify, including certain medical bills, tuition, payments to prevent eviction or foreclosure, funeral costs, and certain repairs to a primary residence.

Vanguard said retirement accounts are increasingly functioning as a backstop, particularly as more employers adopt automatic enrollment and automatic escalation features that can build meaningful balances for workers who might otherwise save little or nothing.

The firm said 45% of plan participants increased their savings rate last year, a trend Vanguard has linked to plan design changes that make saving the default choice rather than an opt-in decision.

By the end of 2025, Vanguard said the average 401(k) balance it tracks reached $168,000, up 13% from the end of 2024, reflecting both higher contributions and market gains.

Even so, the company reported that the median hardship withdrawal in 2025 was $1,900, and the most common reasons were avoiding foreclosure or eviction (36%), medical expenses (31%), tuition (13%), primary residence repairs (11%), and buying a home (5%).

Congress and regulators have also broadened pathways for early access, including provisions in the SECURE 2.0 Act that allow penalty-free withdrawals in certain circumstances such as domestic abuse, federally declared disasters, and a limited personal emergency withdrawal of up to $1,000 with repayment rules tied to future use.

Financial experts generally warn that pulling money from a 401(k) can carry lasting costs because the withdrawal reduces long-term compounding, and the IRS notes hardship distributions are typically taxable and generally cannot be repaid to the account.

The hardship trend is landing amid a broader retirement readiness problem, with the National Institute on Retirement Security reporting this year that the typical working American has less than $1,000 saved for retirement.

Separately, an AARP survey released in February found that 7% of retirees said they had returned to work in the past six months, with many citing money pressures as a key reason for doing so.

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