The average 401(k) balance climbed to an all-time high of $168,000 in 2024, according to Fidelity Investments’ quarterly retirement analysis. In the same year, a record share of workers, roughly 6%, took hardship withdrawals from those accounts, with foreclosure and eviction prevention ranking among the most frequently cited reasons.
Those two records arrived in the same reporting cycle, and they tell the story of a retirement system splitting down the middle. Workers with stable incomes and long job tenures are riding years of stock-market gains to balances they have never seen before. Workers under acute financial pressure are breaking into the one account that is supposed to stay sealed until their 60s, often to keep a roof over their heads.
What the numbers actually say
Fidelity administers more than 45 million retirement accounts, making its data one of the broadest snapshots available. The firm reported that average 401(k) balances rose sharply through 2024, fueled by equity-market performance and steady contribution rates.
But averages can mislead. A small number of seven-figure accounts pulls the number up. Vanguard’s 2024 “How America Saves” report pegs the overall median balance at roughly $35,000, meaning half of all participants hold less than that. The gap between $168,000 and $35,000 is itself a measure of how unevenly retirement wealth is distributed.
On the hardship side, the approximately 6% annual rate draws on data from large recordkeepers including Fidelity and Bank of America’s annual workplace benefits survey. Both firms documented rising hardship activity through 2023 and 2024. Avoiding foreclosure or eviction ranked as one of the top qualifying reasons participants gave, though medical expenses and other costs also figured prominently.
“We are seeing two very different stories play out in the same data,” said Mike Shamrell, vice president of thought leadership at Fidelity Investments, in the firm’s quarterly analysis. Workers with long tenures and consistent contributions are reaching milestones, while a growing subset is tapping retirement funds under duress.
An important caveat: no single federal dataset breaks out exactly how many hardship dollars went to housing versus medical bills versus other needs. The IRS defines the qualifying categories but does not publish aggregate statistics on how often each one is used. The industry survey findings that point to housing distress as a leading driver are based on recordkeeper samples, not audited government data, and different firms’ numbers can tell slightly different stories.
Why the rules make hardship withdrawals easier now
Part of the uptick traces back to a regulatory change that took effect before the pandemic. Final rules published in Internal Revenue Bulletin 2019-41 removed two longstanding barriers that had kept hardship withdrawal rates lower for years.
Before 2019, workers had to exhaust all available 401(k) loans before they could qualify for a hardship distribution. They also faced a mandatory six-month suspension of new contributions afterward, which meant losing employer matching dollars on top of the withdrawal itself. Both requirements are now gone.
Today, a worker facing foreclosure can request a hardship distribution without first borrowing against the account, and contributions can resume immediately. The IRS still limits each withdrawal to the amount needed to cover the qualifying expense, including any taxes and penalties the distribution will trigger, so participants cannot simply empty their accounts. But the process is faster and less punishing than it used to be.
The IRS spells out qualifying expenses in its guidance on hardship distributions: unreimbursed medical costs, certain education expenses, funeral costs, and payments necessary to prevent eviction or foreclosure on a primary residence. The agency’s published hardship FAQs confirm that foreclosure prevention is a safe-harbor category and clarify how plans can rely on participant certifications rather than requiring extensive documentation.
One detail that catches many workers off guard: employers are not required to offer hardship withdrawals at all. Whether the option exists depends entirely on the plan document. A worker who assumes the money is accessible in an emergency may discover otherwise only when the emergency arrives.
The real cost of cracking open a 401(k) early
The financial damage extends well beyond the amount withdrawn. A hardship distribution is taxed as ordinary income in the year it is received. For a worker under age 59½, the IRS also imposes a 10% early-distribution penalty on top of regular income taxes unless a specific exception applies.
Run the math on a $20,000 withdrawal for someone in the 22% federal tax bracket: roughly $4,400 in federal income tax plus a $2,000 penalty, totaling about $6,400 before state taxes are factored in. The worker walks away with significantly less than $20,000 in hand.
Then there is the cost that never shows up on a tax form. Money pulled from a 401(k) loses decades of compounding. That same $20,000 withdrawn at age 35, assuming a 7% average annual return, would have grown to more than $150,000 by age 65. For a worker already behind on savings, the long-term hit can be devastating.
Congress tried to build a pressure valve
Lawmakers recognized the problem. The SECURE 2.0 Act, signed in December 2022, introduced a provision that took effect in 2024 allowing workers to withdraw up to $1,000 per year for personal or family emergency expenses without the 10% early-withdrawal penalty, provided the amount is repaid within three years.
The law also encouraged employers to offer emergency savings accounts linked to the 401(k), allowing auto-enrollment into a sidecar Roth account capped at $2,500. The idea is straightforward: give workers a small, accessible cash cushion so they do not have to raid long-term retirement savings for a car repair or an overdue rent payment.
Whether these newer options will meaningfully reduce hardship withdrawals is still an open question. As of mid-2026, adoption among plan sponsors remains in early stages, and the $1,000 annual limit is far too small to cover a looming foreclosure.
What to do before taking a hardship withdrawal
For workers weighing the decision, a few steps are worth taking first. Check whether the plan offers 401(k) loans, which are repaid with interest back into the account and do not permanently reduce the balance the way a hardship distribution does. Review the plan document or call the plan administrator to confirm that hardship withdrawals are even available. The IRS maintains an online assistance portal and telephone help lines that can address how the rules apply in specific situations, though the agency does not provide personalized financial advice.
For anyone managing a workplace retirement plan, the rise in hardship activity is a signal worth watching closely. Aligning internal procedures with the latest IRS regulations and FAQs ensures distributions are processed consistently and documented properly. Sponsors who have not yet adopted SECURE 2.0’s emergency savings provisions may want to evaluate whether a sidecar account could give participants a release valve that does not require draining long-term savings.
Two retirement realities sharing one system
Record balances and record hardship rates are not contradictory. They reflect two very different financial realities coexisting inside the same retirement system. The workers celebrating all-time-high account statements and the workers filing hardship paperwork to stop a foreclosure are often employed at the same companies, contributing to the same plans.
Until housing costs, medical expenses, and wage growth move in directions that relieve pressure on lower- and middle-income households, the 401(k) will continue to serve a role it was never designed for: long-term savings vehicle by day, emergency cash reserve of last resort by night.
