Saving is hard, and more Americans are tapping into retirement funds early to keep afloat, data show.
Hardship withdrawals from 401(k) savings more than doubled in three years and loan usage jumped 80% in 2025 from the prior year, according to Plan Sponsor Council of America’s (PSCA) annual survey of 753 plan sponsors in 2025.
The share of participants taking a hardship withdrawal rose to 3.4% last year, marking the third straight annual increase and more than double the 1.5% recorded in 2022. Meanwhile, the share of participants with a loan outstanding climbed to 22.2% from 12.4% in 2024 though the average loan amount fell to $9,818 from $13,710.
The jump in early withdrawals and loans coincides with elevated inflation rates that started and peaked
in 2022. Annual inflation reached 9.1%, a 40-year high, in June 2022. Since then, it's eased back into the 3% range but remains above the Federal Reserve's 2% goal.
“Affordability is driving this data," said Will Hansen, PSCA’s executive director. "When everyday costs keep climbing, the 401(k) becomes the emergency fund, and more workers are taking smaller loans and hardship withdrawals just to keep up."
Should you use your 401(k) as an emergency fund?
Financial advisers prefer people keep their money invested in a 401(k) to grow and fund their retirement.
"A worker who withdraws $10,000 today isn’t just losing $10,000 from their retirement plan," said Mike Pappis, head of support and a certified financial planner at Boldin, a DIY retirement and financial planning software platform. "At a hypothetical 6% annual return, that money could have grown to roughly $32,000 over 20 years. When workers don’t have that type of visibility into their plan, and (that) type of loss is multiplied across thousands of workers, we are likely to see an increase in lower retirement savings years from now."
However, having the ability to tap these funds is necessary. "Financial behavior studies show people are more likely to contribute if they know they have access to these funds in an emergency," Hansen said.
That makes withdrawals "not necessarily 'good' or 'bad,'" Pappis said. "It’s more a question of the circumstances. If someone is facing eviction, a major medical expense, or another financial emergency, accessing their retirement savings might be their best option."
Know the difference between hardship withdrawal and loan
When deciding to tap retirement funds early, it's important to know the difference between a hardship withdrawal and a loan from a 401(k), advisers said.
A hardship withdrawal from a traditional 401(k) permanently reduces retirement savings and is generally subject to income taxes, plus a possible 10% early withdrawal penalty if you’re under 59 ½ years old.
Hardship withdrawals were made easier to take under SECURE 2.0, passed at the end of 2022. The law allowed employers the option to simplify hardship withdrawals by allowing workers to confirm they qualify without providing supporting documentation upfront. This could partly explain the annual increases in hardship withdrawals since 2022, analysts said. More than a third of plans (36.7%) now process hardship withdrawals through self-certification, PSCA's study showed.
A 401(k) loan lets you borrow from your account and repay the money with interest, generally without immediate taxes. "When this is exercised, borrowers do leave investment growth on the table, and they could be subject to tax penalties if they leave their job or fail to repay the loan," Pappis said. "However, if someone has stable employment and can afford the loan payments, this is another option to consider before a hardship withdrawal."
Are there other options people should consider to raise money?
People often see their 401(k) as the biggest lump sum to draw down, especially as 401(k) balances have soared with the strong stock market. The average account balance for active and terminated vested participants in 401(k) plans rose 21% to $186,431 from $154,207, slightly outpacing the S&P 500’s 17.9% gain for 2025, PSCA said.
The larger balances may provide more of a cushion from withdrawals, but that doesn’t make it the best decision, advisers said.
Other options to consider before tapping 401(k) money include Roth IRAs and health savings accounts (HSAs). Roth IRA contributions, not investment earnings, can be taken any time without taxes or penalties, and HSA money can be used for tax-free reimbursement for any eligible medical expenses that were paid out of pocket after opening the account. Advisers recommend keeping receipts of eligible expenses and using them to withdraw HSA money when you need it.
Before taking any withdrawals anywhere though, people should ask themselves "why is this money needed, and what are the options?" Pappis said. "For example, someone facing a medical bill may be able to negotiate a payment plan with a medical provider. Another question that moves the needle is where any discretionary spending or retirement contributions can be decreased to free up cash."
Workers could also benefit from financial planning. "There are several financial levers that get pulled over the course of one’s lifetime, and when there’s no visibility or plan, then we see situations like this where workers are using their 401(k) for an emergency fund – and that’s not their intended function," he said.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: 401(k) loans just jumped 80%. Why workers are tapping savings early
