Hardship withdrawals from 401(k) plans surged to 4.8% of participants in 2024, up from 3.6% in 2023, according to Vanguard Group Inc. data. The increase reflects growing financial pressure on American workers seeking immediate cash access.
Tax Penalties Make Early Access Costly
“It should really only be a last resort,” said Paul Brahim, certified financial planner and Financial Planning Association president, reported CNBC.
Traditional 401(k) withdrawals before age 59½ face income tax plus a 10% penalty unless qualifying for hardship exemptions. The compound interest lost makes early access “a very, very expensive way to access money,” Brahim said.
Legislative changes have simplified hardship withdrawal processes for “immediate and heavy” financial needs, contributing to increased usage.
Alternative Options Available Before Withdrawal
Financial advisors recommend exhausting other options first:
- Emergency funds: Vanguard research shows participants with $2,000 cash reserves contributed more to retirement accounts and made fewer early withdrawals
- 401(k) loans: Borrow up to $50,000 or 50% of vested balance at prime rate plus 1-2%, above prime rate of 7.5%
- Home equity: Access 80-85% of home value at 8.22% average rate, per Bankrate
Policy Changes Add Complexity
Read Next:
Photo Courtesy: Tada Images on Shutterstock.com
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
© 2026 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
To add Benzinga News as your preferred source on Google, click here.