Record 6% of Workers Drain 401(k)s Early as Financial Hardship Forces Retirement Raid

A record-breaking number of Americans are tapping into their 401(k) retirement accounts in response to financial hardships.

According to the Internal Revenue Service, a hardship distribution is a withdrawal from a 401(k) plan because of an immediate and heavy financial need. The withdrawal is limited and only satisfies the specific financial need in question.  

Six percent of working Americans with 401(k) plans administered by the Vanguard Group removed money from their accounts for hardship withdrawals in 2025. This 6% rate for hardship withdrawals is an increase from 4.8% in 2024 and a prepandemic average of just 2%, The Wall Street Journal reports. 

The reason for hardship withdrawals, which were a median of $1,900 in 2025, was to avert foreclosure from homes and evictions from apartments and to cover medical expenses, according to The Wall Street Journal. 

Changes in Hardship Withdrawals 

The increase in hardship withdrawals has been growing since 2018 when the U.S. Congress made them simpler to do. Since 2018, employees are no longer required to use a 401(k) loan prior to taking out a hardship withdrawal from their 401(k) plans,

In 2022, Congress passed a law that allowed employees to make hardship withdrawals following a federally declared disaster or because they are victims of domestic abuse.

This law also allows employees to take an emergency hardship withdrawal of as much as $1,000 once every three years without paying a penalty, The Wall Street Journal reports. 

Some Americans Live Without Savings

According to the Federal Reserve, 37% of Americans said they would not be able to afford a $400 emergency expense or they would need to borrow or sell something to cover the expense.

Sixty-three percent of Americans said they would pay for the emergency with cash, savings, or with a credit card that would be paid off at the next statement.

401(k) Plans Encourage Savings

Nearly half of all Americans who have retirement savings in a 401(k) or similar plan say they probably would not save for retirement otherwise, according to a national survey from the Investment Company Institute.

“Workplace retirement plans are essential to helping Americans save for their future, thanks to key 401(k) features like payroll deductions, a broad range of funds to invest in, and tax advantages,” said Shelly Antoniewicz, Chief Economist at the Investment Company Institute.

“These plans give Americans of all income levels the chance to invest and to control their investments.”

Record Balances in 401(k) Plans

While some Americans struggle to handle even small financial emergencies others are enjoying a boon in their retirement plans with balances in 401(k) plans at record highs. According to Fidelity, the average annual 401(k) account balance increased by double digits for a third straight year.

More recently, 401(k) balances in the fourth quarter of 2025 increased more than 11% from balances in the fourth quarter of 2024.

“Retirement savers remain committed to their financial futures by staying the course with their retirement savings,“ said Sharon Brovelli, President of Workplace Investing at Fidelity Investments.

”The consistency so many Americans show in maintaining responsible savings behaviors and keeping a long-term perspective will serve them well in retirement.” 

Strong markets have fueled the growth in 401(k) accounts, but some households still may feel like they are struggling with cost-of-living expenses. In addition, people turning to hardship withdrawals in their 401(k) accounts may have limited liquidity, no emergency savings, and they may be carrying debt.

They may also be using their 401(k) account for a short-term cash crunch.

The Bottom Line

A record number of Americans are tapping into 401(k) accounts to pay for financial emergencies such as making mortgage or rent payments and covering medical expenses. And they aren’t alone. Thirty-seven percent of Americans said they would not be able to pay a $400 emergency. 

Overall, 401(k) balances are at record levels but some Americans facing a high cost of living may still feel like they are struggling.