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Why workers are raiding 401(k)s as hardship withdrawals double
USA Today • • business
Key Points:
- Hardship withdrawals from 401(k) plans more than doubled between 2022 and 2025, rising to 3.4% of participants, while 401(k) loan usage increased by 80% in 2025 compared to the previous year, driven by inflation-related financial strain.
- Experts caution that using 401(k) funds early can significantly reduce retirement savings due to lost investment growth and potential taxes and penalties, but recognize that accessing these funds may be necessary in emergencies like eviction or medical expenses.
- The SECURE 2.0 law has made hardship withdrawals easier by allowing self-certification, which may partly explain the increase in withdrawals since 2022.
- Financial advisers recommend exploring alternatives such as Roth IRA contributions, health savings accounts, negotiating payment plans, or adjusting discretionary spending before tapping into 401(k) savings.
- Comprehensive financial planning is encouraged to help workers avoid using retirement funds as emergency cash, preserving their intended purpose of funding retirement.
