Some 6 percent of those with 401(k)s<\/a> took hardship withdrawals from their accounts in 2025, up from 4.8 percent in 2024 and triple the pre-pandemic rate of 2 percent in 2018, according to a study preview<\/a> released Wednesday by investment firm Vanguard. <\/p>\n A popular option for retirement plans, 401(k)s are offered by employers and allow most employees to contribute up to $24,500 a year. In many cases, employers match employee contributions up to a certain percentage. <\/p>\n Generally speaking, 401(k)s are a voluntary account that employees can sign up for. Recently, more employers have automatically enrolled employees into 401(k)s, leading to more chances for hardship withdrawals, Vanguard noted.<\/p>\n \u201cFor a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that may not otherwise have been available without plan-implemented automatic solutions,\u201d the study said.<\/p>\n Drawing on desperation<\/p>\n A hardship withdrawal is typically a final resort after people have tried -and failed – to find other ways to cover their expenses. It means they are willing to take on income taxes, potential penalties and lost retirement income to get their money. <\/p>\n That sense of desperation mirrors recent studies pointing to the financial strain many feel right now. Some 40 percent of consumers<\/a> are likely still carrying debt from holiday purchases. <\/p>\n Furthermore, 43 percent of consumers don\u2019t have enough in savings to cover a $1,000 emergency expense, a U.S. News & World Report survey<\/a> published this month found. <\/p>\n The decision to pull money from a 401(k)<\/a> comes at a considerable cost at tax time, too.<\/p>\n Penalty pain<\/p>\n In general, the Internal Revenue Service considers as income any 401(k) withdrawals made before age 59 1\/2. Therefore, employees under that age have to pay income tax on a hardship withdrawal. <\/p>\n Additionally, the IRS will penalize the employee 10 percent on the withdrawal if it doesn\u2019t meet one of 12 Internal Revenue Service criteria. So, if someone does a $5,000 hardship withdrawal, they may have to pay an additional $500 penalty when they file their taxes.<\/p>\n The cost goes beyond a given tax year, though. It impacts how much money will be in the 401(k) at retirement time. <\/p>\n If a 35-year-old employee made a $1,000 hardship withdrawal today, that $1,000 would\u2019ve been been worth $4,764.94 to $11,737.08 at retirement, had the money stayed in the account, based on average 401(k) returns<\/a>, according to finance firm SoFi.<\/p>\n Withdrawal rules <\/p>\n![\"More](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/03\/GettyImages-831455320.jpg\")
More Americans than ever are turning to 401(k) withdrawals to make ends meet (AFP\/Getty)<\/p>\n