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For some Americans facing urgent expenses, retirement savings have become a financial lifeline \u2014 with tradeoffs for the future.<\/p>\n
Jacob Wackerhausen\/Getty ImagesSix percent of retirement plan participants took a 401(k) hardship withdrawal in 2025, a 20% increase from the previous year and the highest rate on record.The average hardship withdrawal was about $1,900, suggesting most participants are tapping 401(k)s to cover short-term needs rather than cashing out.California\u2019s unemployment rate reached 5.5% at the end of 2025, with more than 173,000 job cuts announced statewide between January and November.<\/p>\n
When tax attorney Andrew Gradman thinks about 401(k) hardship withdrawals, he thinks of Puccini.<\/p>\n
In the opening scene of the opera \u201cLa Boheme,\u201d struggling artists Marcello and Rodolfo keep warm by burning pages from Rodolfo\u2019s latest poem.\u00a0<\/p>\n
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When people tap their retirement accounts early, a similar\u00a0\u2014 though less dire\u00a0\u2014\u00a0calculation is taking place. They\u2019re burning retirement dollars that come with penalties, taxes and lost growth.<\/p>\n
But under specific, limited circumstances\u00a0\u2014 ideally before you\u2019re in danger of freezing to death\u00a0\u2014 a 401(k) hardship withdrawal can be the right move.<\/p>\n
A record number of Americans made that calculation for themselves in 2025, according to a new report from Vanguard. Six percent of their retirement plan participants initiated a hardship withdrawal last year, up 20% from 2024, and a record high overall.<\/p>\n
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<\/p>\n Add Preferred Source<\/p>\n <\/a><\/p>\n It wasn\u2019t all bad news, said David Stinnett, Vanguard\u2019s Head of Strategic Retirement Consulting. Account balances increased by an average of 13%. The average plan participant had $167,970 in their account at the end of 2025, with a median balance of $44,115.\u00a0<\/p>\n Article continues below this ad<\/p>\n Stinnett credited automatic 401(k) enrollment and automated annual increases with boosting workers\u2019 retirement savings, in addition to overall market performance. Many workplaces are introducing financial wellness programs to help employees understand their options, which can further enhance participation, he said.<\/p>\n \u2022 Got money questions? Here\u2019s how to send them to our California budgeting advice columnist<\/a><\/p>\n Lower-compensated workers were more likely to tap 401(k)s for hardship withdrawals, Stinnett said. The average withdrawal amount was $1,900, which is not nothing, but not an indicator that many people are fully cashing out their accounts.<\/p>\n How do hardship withdrawals work, and why are people using them more often? When are they a good choice, and what alternatives are there? Here\u2019s what financial experts think.<\/p>\n What is a 401(k) hardship withdrawal?<\/p>\n A 401(k) hardship withdrawal is when you take money from your 401(k) account to pay for an urgent expense. You have to prove to your plan administrator that you have what the IRS calls an \u201cimmediate and heavy need,\u201d and you can only withdraw the amount needed to pay for it.<\/p>\n Article continues below this ad<\/p>\n The IRS has a list<\/a> of the types of need that qualify: They include payments to prevent eviction or foreclosure on your primary residence; repairs for damage to that residence; expenses related to a FEMA-declared disaster; or to pay certain medical, education or funeral costs for yourself, your spouse, your plan beneficiaries or dependents.\u00a0<\/p>\n Qualified hardship distributions are slightly different from early withdrawals. If you just want to take money from your 401(k) before you\u2019re 59\u00bd, you can, but it will hurt: You\u2019ll pay a 10% federal penalty and a 2.5% California penalty. And then you have to pay federal and state income taxes on it. So you take a big haircut.<\/p>\n Hardship withdrawals, on the other hand, don\u2019t always face those same penalties\u00a0\u2014 you\u2019re not subject to the 10% additional tax if you qualify separately for an IRS exception<\/a>. You do have to pay state and federal taxes on them, though.\u00a0<\/p>\n \u2022 Read: Is taking an early withdrawal from a 401(k) really so bad?<\/a><\/p>\n \u2022\u00a0Read: The 401(k) milestones everyone should hit ASAP\u00a0\u2014 and next steps to take once you pass them<\/a><\/p>\n Article continues below this ad<\/p>\n SECURE 2.0\u00a0\u2014 legislation passed under the Biden administration in 2022\u00a0\u2014 streamlined how hardship withdrawals can be qualified,\u00a0Stinnett said. There used to be more paperwork involved, but now plan participants may be able to self-certify with less documentation.<\/p>\n Why 401(k) hardship withdrawals are increasing<\/p>\n 2025 saw new record highs for the stock market. But economic headwinds blew the other way for a large swath of Americans. California employers announced more than 173,000 job cuts between January and November of last year, including thousands at Bay Area tech firms like Salesforce, Meta and HP. As companies in the AI space fought to lure top engineers, California saw its overall unemployment rate hit 5.5% at the end of the year, well above the national rate of 4.4%.<\/p>\n Most 401(k) plans don\u2019t allow you to take a hardship withdrawal after you\u2019ve been laid off or fired. But if you\u2019re still employed and a spouse or roommate gets laid off, a hardship withdrawal can help bridge the gap to prevent things like foreclosure or eviction, or pay urgent medical bills. (If you have lost your job, you are likely eligible for what\u2019s called a severance distribution, which isn\u2019t the same thing as a hardship withdrawal.)<\/p>\n Tariffs, elevated inflation and rising housing costs further pinched household budgets, putting many people living paycheck-to-paycheck in a position where needs exceeded resources.<\/p>\n Article continues below this ad<\/p>\n The rise in hardship withdrawal rates and the fact that more lower-income people are taking them are continued signs of the so-called \u201cK-shaped economy.\u201d If you look at the letter K, the upper arm rises and the lower arm points downward. Think of those as the \u201chaves and have nots\u201d of today\u2019s economy: People with higher incomes and wealth levels are seeing their fortunes grow, while others are in worse financial shape compared to a few years ago.<\/p>\n When to use a 401(k) hardship withdrawal<\/p>\n When should you seek a qualified hardship withdrawal? Gradman\u2019s topline advice when people ask him about taking any sort of early distribution from their retirement accounts is \u201cdon\u2019t.\u201d You\u2019re missing out on a major opportunity cost. $1,900 isn\u2019t that much money right now, but if you take that out at, say, age 35, typical market returns indicate you\u2019ll have about $12,000 less in your retirement account at age 67.<\/p>\n \u201cYou\u2019re stealing from your future self,\u201d he said. It should be a moment when you\u2019ve exhausted your other options.\u00a0<\/p>\n But your retirement savings should absolutely serve as a backstop against financial oblivion, and paying for medical treatment and preventing an eviction are worthy uses of it.\u00a0<\/p>\n If you do need to take one or two hardship withdrawals over the course of your career, \u201cthat\u2019s not going to meaningfully set back your long-term objective\u201d of saving for retirement, Stinnett said. \u201cOn the other hand, it\u2019s important to start saving for emergency savings needs.\u201d<\/p>\n Alternatives to a 401(k) hardship withdrawal<\/p>\n The best alternative to taking money from your 401(k) is to use your emergency fund first. There\u2019s a lot of focus in personal finance writing on building an e-fund, though not always a ton of guidance on how and when to use it.<\/p>\n \u2022 Read: You\u2019ve built your emergency fund. Here\u2019s what to do when you need to use it<\/a><\/p>\n \u2022\u00a0Read: The ultimate guide to making a household budget<\/a><\/p>\n