Americans are cracking open their 401(k)s at record rates
American workers are getting better at saving for retirement, but a growing share are also tapping their 401(k)s for emergency cash.
Hardship withdrawals, emergency withdrawals allowed only under strict IRS criteria, have been rising steadily since 2022 and are now nearing 1% of all 401(k) participants, according to recent data.
By the second quarter of 2025, about 0.9% of workers had taken a hardship withdrawal, up sharply from 0.35% in early 2023.
These withdrawals are permitted only for immediate and pressing financial needs, such as large medical bills, preventing foreclosure or eviction, or covering certain types of debt or disaster-related expenses.
However, taking one carries a steep price: the money is permanently removed from a worker’s retirement savings, is typically subject to a 10% penalty for anyone under age 59½, and is taxed as income if the contribution wasn’t taxed before.
While the percentages of hardship withdrawals may seem small, even slight upticks are meaningful because hardship withdrawals are relatively rare and usually signal increased financial distress among workers.
The trend also undermines what had been encouraging progress in retirement planning, particularly among younger workers who have been steadily increasing their contributions and taking advantage of employer-matching programs.
It’s called a “hardship” withdrawal for a reason
Financial advisers consistently urge savers to avoid touching their 401(k)s before retirement. The system is designed to reward long-term saving through tax benefits — not to function as an emergency fund.
The IRS offers its own warning: “Remember, a 401(k) plan is designed to help you save money for retirement. Consider the consequences before dipping into your retirement savings.”
The challenge for many Americans is that layoffs are rising and new jobs are becoming harder to land, leaving more workers desperate enough to tap their retirement plans.
Retirement expert Anne Lester told CNBC that withdrawing from a 401(k) after a layoff is one of the most damaging financial decisions a worker can make. “The long-term consequences of that are going to be very painful,” she said.
Even Americans who are still employed but considering dipping into their 401(k)s for seemingly productive reasons, such as paying down a mortgage, should think twice, according to personal finance expert Dave Ramsey.
“You don’t need to be cleaning out your 401(k) and adding to the stupid sauce,” Ramsey told a recent caller on his show who was considering using her retirement balance to pay down mortgage debt.
Like other financial experts, Ramsey said hardship withdrawals should be used only when absolutely necessary and avoided in nearly all other circumstances.