Loans and Hardship Withdrawals From 401(k)s Are Rising

More Americans are tapping their 401(k)s for financial emergencies, with the percentage of retirement savers pulling money for hardships spiking 24% in the 12 months through Sept. 30, according to new data.

For now, the overall percentage of savers withdrawing money for sudden hardships remains low, rising to 1.3%. And about 60% of that activity came from savers with incomes below $60,000, according to a study by Empower Retirement of 4.3 million plan participants in mostly corporate retirement plans. Still, the increase speaks to the financial stress Americans are under.

“It’s intuitive that relatively lower-income people are going to be tapping resources because they have fewer options, but it’s starting to spread,” said Luis Fleites, director of thought leadership for Empower. “I wouldn’t be surprised if it continues to rise at other income levels.”

Loans against 401(k) accounts rose 13% in Empower’s study. More than half of all loans and hardship withdrawals in the 12 months through Sept. 30 were taken out by Gen Xers, who are between the ages of 40 and 57.

Fidelity Investments also saw an increase in hardship withdrawals among a universe of more than 21 million 401(k) plan participants. From January through October, 2.2% of participants took the withdrawals, up from the 1.9% average for all of 2021.

In recent history, the most common reasons for withdrawals were to avoid foreclosure or eviction, followed by medical expenses, according to Michael Shamrell, vice president of thought leadership at Fidelity.