Record 401k Hardship Withdrawals Hit

The rate of hardship withdrawals has been steadily increasing, with 6% of 401(k) participants taking one in 2025, up from 4.8% in 2024 and 3.6% in 2023. This is a significant jump from the pre-pandemic average of about 2%. This trend has been on the rise for six consecutive years. The primary drivers for these withdrawals are urgent financial needs. Avoiding foreclosure or eviction is the most common reason, accounting for 36% of withdrawals, followed by medical expenses at 31%. Other reasons include personal debt, recurring bills, and unexpected major expenses. Recent legislation has made it easier to access these funds. The SECURE 2.0 Act, passed in 2022, allows for penalty-free emergency withdrawals of up to $1,000 per year. This, combined with an easier process for requesting hardship withdrawals, may be contributing to the increase in activity. Despite the rise in withdrawals, average 401(k) balances have actually grown. In 2025, the average balance increased by 13% to $168,000, thanks to a strong stock market. Nearly half of all participants also increased their contribution rates. However, tapping into retirement savings comes with significant long-term consequences. The withdrawn amount is permanently removed from the account, losing out on future compound growth. These distributions are also subject to income tax and may incur a 10% penalty if the individual is under 59½. The increase in withdrawals is most pronounced among lower-income and hourly workers, which can worsen long-term wealth inequality. This trend of "leakage" from retirement accounts, where funds are withdrawn before retirement, threatens the long-term financial security of many Americans. The median withdrawal amount in 2025 was $1,900.