The Surging Popularity of 401(k) Hardship Withdrawals: A Risky Financial Move

Retirement account balances have rebounded in 2023, but the share of participants taking hardship withdrawals from their 401(k) plans has increased, according to reports by Fidelity Investments, Bank of America, and Vanguard. Experts warn that hardship withdrawals are the worst way to access funds from a 401(k) due to potential tax consequences and the inability to repay the money. While average 401(k) and individual retirement account balances have risen, the rise in withdrawals indicates ongoing financial strain for many households. Financial experts advise exhausting all other options before resorting to hardship withdrawals, as they can undermine retirement security and the power of compound interest.