401(k) hardship withdrawals hit record high — but investments still up
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A record number Americans are withdrawing money early from their retirement plans, but account balances still jumped in 2025.
Why it matters: Financial advisers caution against early withdrawals due to the tax implications and potential penalties.
The big picture: 6% of people with retirement plans requested hardship withdrawals in 2025, a new high, according to a report by investment firm Vanguard about its members.
- That's up from 4.8% in 2024 and from an average of about 2% before the pandemic, a Vanguard spokesperson confirmed.
- The report notes "some signs of heightened financial stress among certain workers."
Yes, but: The uptick in early withdrawals follows a series of changes Congress enacted beginning in 2019 that made it easier to tap retirement accounts for hardship reasons.
- The SECURE 2.0 Act, passed in 2022, allows a penalty-free distribution of up to $1,000 for "emergency" purposes.
- "Given that it's now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement, especially lower-income workers, a modest increase isn't surprising," Vanguard notes.
Meanwhile, plan features like automatic enrollment and contribution increases can leave workers with a cushion they might not otherwise have had — making hardship withdrawals possible in the first place, the report notes.
Zoom in: A strong stock market drove the average 401(k) balance up 11% to $146,400 in 2025, according to a new report by Fidelity released Wednesday.
- It marked the third straight year of double-digit increases.
- The average employee contribution was 9.3% in the fourth quarter.
- "Despite uniquely challenging times, retirement savers remain committed to their financial futures by staying the course," Sharon Brovelli, president of workplace investing at Fidelity, said in a statement.
The bottom line: 401(k) withdrawals aren't necessarily what they used to be.
