401(k) hardship withdrawals hit a record high last year. Six percent of workers in Vanguard-managed retirement plans pulled money out early. That’s up from five percent the year before, marking the sixth straight annual increase. Most of these withdrawals cover real problems: a looming eviction, a medical bill, a repair that can’t wait. Here’s what’s driving the surge, what an early withdrawal actually costs, and what to try first.
Why 401(k) Hardship Withdrawals Are Climbing
A hardship withdrawal lets you pull money from your 401(k) before retirement age. You can only do it for an immediate, IRS-recognized financial need. The rate of workers doing this has risen for six straight years.
Retirement-plan data from Vanguard puts the median hardship withdrawal last year at $1,900. That is roughly triple the rate recorded before the pandemic. Building an emergency fund closes that gap for most households, since it covers the same costs without touching retirement money.
What’s Actually Pushing People to Pull Early
Housing costs top the list. In 2025, 36 percent of hardship withdrawals went toward avoiding foreclosure or eviction. Medical expenses came in second, at 31 percent of cases. Tuition costs made up another 13 percent, and home repairs accounted for 11 percent.
These are not optional expenses. Nobody pulls retirement savings early to cover a vacation or a new phone. People doing this cover costs that cannot wait for a paycheck.
The Real Cost of an Early Withdrawal
A hardship withdrawal is not a loan. You cannot pay the money back into your account later. The balance you pull out stops growing for the rest of your working life.
You also owe income tax on the amount you withdraw. You also owe a 10 percent penalty if you are under 59 and a half. A $1,900 withdrawal can cost you $400 or more in combined taxes and penalties.
The higher cost is lost growth. Money pulled out at 25 doesn’t compound for the next 40 years. A $1,900 withdrawal today could mean tens of thousands of dollars less at retirement.
Who Faces the Highest Risk
Income matters more than age here. Workers earning under $100,000 a year take hardship withdrawals far more often, according to Vanguard’s How America Saves 2026 report. They are about 3.5 times more likely to do so than higher earners.
This makes sense once you look at the numbers. Lower earners start with smaller emergency reserves. A $1,900 car repair hits much harder on a $45,000 salary than a $150,000 one.
What to Try Before You Touch Retirement Money
Start with a 401(k) loan if your plan allows one. Unlike a hardship withdrawal, you repay a loan through payroll deductions. The interest you pay goes back into your account, not to a bank.
A cash cushion solves the same problem without touching retirement savings. Covering three months of rent in cash lets you skip the tax hit. It also means skipping the lost growth entirely.
Setting up a monthly budgeting system shows you exactly how much room you have. Redirecting even a small amount toward savings each month adds up faster than most people expect.
Even $50 a month adds up to $600 a year. That covers a large share of the medical and repair costs driving these withdrawals today.
Frequently Asked Questions About 401(k) Hardship Withdrawals
What Counts as a 401(k) Hardship Withdrawal?
The IRS limits it to immediate needs. That includes avoiding eviction or foreclosure, certain medical costs, tuition, funeral costs, and some home repairs. Your plan must also specifically allow hardship withdrawals.
Do You Pay Taxes and Penalties on a Hardship Withdrawal?
Yes. You owe regular income tax on the amount withdrawn. You also owe a 10 percent early withdrawal penalty if you are under 59 and a half.
Can You Repay a 401(k) Hardship Withdrawal Later?
No. Unlike a loan, a hardship withdrawal permanently removes that money from your account. You can’t put it back.
Is a 401(k) Loan Better Than a Hardship Withdrawal?
Often, yes. A loan avoids taxes and penalties entirely. You also pay yourself interest instead of losing it to a lender.
How Much Should You Keep in an Emergency Fund Instead?
Most planners suggest three to six months of expenses. Even $1,900 in savings covers the median hardship withdrawal amount reported in 2025.
Final Thoughts
Needing cash fast is not a failure. It is a normal part of adult life, especially early on when reserves are thin. The real problem is that a 401(k) hardship withdrawal solves today’s emergency by leaving less for retirement tomorrow. Build even a modest cash cushion now. The next surprise bill won’t force you to choose between your future and your present. Start this month by redirecting one expense into savings, and watch that buffer grow before you need it.
Photo by Andre Taissin: Unsplash
