Overview
- Vanguard reports 6% of its 401(k) participants took hardship distributions last year, up from 5% the prior year and 1.7% in 2020.
- The median hardship amount in 2025 was $1,900, with common uses including preventing eviction or foreclosure and paying medical or education bills.
- Rule changes in 2024 allow up to $1,000 per year for an emergency defined by the saver, generally limited to one such withdrawal annually unless replenished within three years.
- Early taps before age 59½ are typically taxed as income and face a 10% IRS penalty, though properly documented hardship distributions can avoid that penalty.
- Advisers recommend alternatives such as 401(k) loans—often up to 50% of the vested balance or $50,000, repaid over about five years without immediate taxes or penalties—and emphasize budgeting and building a 3–6 month emergency fund.