A new report from Vanguard indicates more Americans are taking hardship withdrawals from their employer-provided 401(k) accounts.
The report shows that 6% of people with Vanguard accounts took hardship withdrawals in 2025, up from 5% the year before. Vanguard said it is not surprising that these types of withdrawals increased in 2025 because it is now easier for people to request them.
Hardship withdrawals are subject to a 10% penalty from the IRS if an exception is not granted. That is in addition to paying taxes on the withdrawal.
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Vanguard also reports that 13% of customers took a loan from their 401(k) in 2025, roughly the same as in 2024. Taking a loan from a 401(k) is less punitive because loans are not taxed; borrowers essentially pay the interest back to themselves.
The report notes a steady increase in the percentage of workers having at least 6% of their income automatically deducted into a 401(k). In 2025, 31% of those with automatic deductions had at least 6% of their income go toward retirement savings, up from 26% in 2020.
Many workers are also seeing gains in their 401(k) accounts. The average account balance increased 13% to $167,970 in 2025. The median account balance rose 16% to $44,115 since the end of 2024.
The report suggests employers should do more to help workers beyond matching 401(k) contributions.
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“Alongside saving for retirement, many workers must also manage student debt, health care expenses, credit card payments and emergency funds,” the report says. “Plan sponsors can support employees by providing cost-effective advice and resources that promote overall financial well-being, including guidance on emergency savings and integrated financial wellness strategies.”
