Six percent of workers enrolled in Vanguard 401(k) plans pulled a hardship withdrawal in 2025, the highest share the firm has ever recorded and up from 5% the year before. The withdrawals are emergency distributions the IRS allows only for a narrow set of urgent needs, and the reason at the top of the list was blunt: 36% of the people who tapped their accounts did so to stop a foreclosure or an eviction. A retirement account meant to sit untouched for decades is increasingly doubling as a household’s last cash reserve.
A sixth straight year of rising hardship withdrawals
The 6% figure comes from Vanguard’s twenty-fifth annual How America Saves report, which tracks the behavior of nearly five million workers. The share taking hardship withdrawals has now climbed for six years running and sits at roughly triple the pre-pandemic rate. That trend runs against an otherwise strong backdrop: participation reached a record 86% of eligible employees, the average savings rate hit an all-time high of 12.1%, and the average account balance ended 2025 near $168,000 after a 13% gain.
The reason breakdown shows what is driving the withdrawals. According to CBS News reporting on the Vanguard data, avoiding foreclosure or eviction accounted for 36% of hardship withdrawals, medical expenses 31%, tuition 13%, home repairs 11%, and a home purchase 5%. Housing and health, the two costs hardest to defer, sit at the front of the line. The median withdrawal was $1,900, a figure that says less about greed than about desperation over a bill that could not wait.
Vanguard’s own researchers frame the rise as an unintended consequence of success. Automatic enrollment has pulled millions of lower-income workers into plans they would not have joined on their own, so more households now have retirement balances available to raid when a shock hits. The safety net exists precisely because the saving happened, even if tapping it undercuts the original purpose.
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Why a hardship withdrawal costs more than a plan loan
The damage from a hardship withdrawal outlasts the emergency that prompted it. Unlike a 401(k) loan, which is repaid to the account with interest, a hardship distribution cannot be put back. Those dollars leave the market permanently, forfeiting every future year of compounding they would have earned. A worker in mid-career who removes even a modest sum surrenders far more than the withdrawal amount by the time retirement arrives.
There are tax teeth as well. A hardship withdrawal is generally treated as taxable income, and a saver under age 59½ typically owes an additional 10% early-distribution penalty unless a specific exception applies. That means a $1,900 withdrawal may deliver noticeably less than $1,900 of usable cash once federal tax and the penalty are settled the following spring. A loan, where available to active employees, avoids both the tax and the penalty as long as it is repaid on schedule.
Part of the increase traces to easier access rather than deeper distress alone. A 2018 change let plans approve hardship requests without first forcing a participant to take a loan, and a 2022 law added qualifying events such as domestic abuse and federally declared disasters, plus a penalty-free withdrawal of up to $1,000 once every three years. Streamlined paperwork made the accounts easier to reach at the exact moment more households needed cash, which helps explain why the rate set a sixth consecutive record.
The order of operations matters. Financial counselors generally steer workers toward a plan loan, a home-equity option, or hardship assistance from a lender before a permanent withdrawal, because the withdrawal is the one move that cannot be reversed. When housing is the emergency, contacting the mortgage servicer or landlord about forbearance often buys more room than draining a retirement account does.
What a $1,900 median says about household budgets
The size of the typical withdrawal is its own signal. A $1,900 median points to households that lack a basic cash cushion, reaching into a long-term account to cover what an emergency fund would normally absorb. Research cited alongside the Vanguard report found the median working-age American has saved only about $1,000 for retirement once people without workplace plans are included, underscoring how thin the buffer is for many families.
For older workers, the timing compounds the risk. A hardship withdrawal taken in the final decade before retirement lands during peak earning and peak balance years, when there is little runway to rebuild what was removed. The same strain that forces the withdrawal, stagnant wages against rising rent, medical bills, and grocery costs, also makes catching up afterward harder.
The record rate is less a story about 401(k) rules than about the space between everyday expenses and everyday income. As long as that gap keeps widening, the retirement account will keep serving as the emergency account, and the quiet cost will show up years later in the form of a smaller monthly check.
This article was produced with AI assistance and reviewed against primary sources by The Money Overview editorial team.
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