Let\u2019s start with the good news: The average account balance for 401(k) plans managed by Vanguard rose by 13% last year, reaching a record high of $167,970 by the end of 2025. The share of plans with automatic enrollment continued to grow, and a majority of those plans (62%) enrolled their employees in them at a default savings rate of 4% or higher.<\/p>\n
The bad news? Hardship withdrawal rates also increased from 5% to 6% year over year, a record high, as more participants took money out of their 401(k) accounts to avoid foreclosure, or eviction, for example, or cover medical expenses.<\/p>\n
While this uptick may seem alarming, there are likely other factors contributing to it besides a tough economy, David Stinnett, a principal with Vanguard\u2019s strategic retirement consulting, said.<\/p>\n
What\u2019s driving the uptick in hardship withdrawals? One non-economic factor likely prompting this uptick is the growing prevalence of automatic enrollment<\/a>. As more employers default their workers into 401(k) plans, the share of lower-compensated workers in those plans is growing, Stinnett explained.<\/p>\n \u201cWhen you look at who\u2019s taking out hardship withdrawals\u2026it certainly does skew towards those making $100,000 or less,\u201d he said.<\/p>\n It\u2019s also become easier to make an early withdrawal from a 401(k) plan thanks to new legislation that\u2019s taken effect in recent years. The SECURE 2.0 Act, which was enacted in 2022, allows 401(k) participants to withdraw $1,000 from their account for financial emergencies each year without incurring a penalty. Plans may allow participants to \u201cself-certify\u201d the reason for which they\u2019re taking an early withdrawal, which is less onerous from a documentation perspective.<\/p>\n Quick-to-read HR news & insights<\/p>\n From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today\u2019s fast-changing business environment.<\/p>\n Additionally, SECURE 2.0 expanded the number of reasons for which participants can take a hardship withdrawal, such as in cases of domestic abuse.<\/p>\n