What is hardship withdrawal?
A hardship withdrawal is an early distribution from a 401(k) or similar employer-sponsored retirement plan taken to cover an immediate financial need. Unlike a plan loan, it cannot be repaid. Previously untaxed amounts are generally included in income, and an additional 10% tax may apply before age 59½ unless an exception applies. In 2025, 6% of participants in Vanguard-administered plans that offer the option took a hardship withdrawal.
Updated
Key facts
- Vanguard's How America Saves report shows 6% of participants in plans offering the option took a hardship withdrawal in 2025, compared with 2.3% in 2019, a year inside the 2018-2020 federal rule change that made withdrawals easier.
- A hardship distribution must be made on account of an 'immediate and heavy financial need' and be limited to the amount needed (IRC §401(k)(2)(B)(i)(IV)), and the plan decides what information or certification it requires — qualifying reasons include medical expenses, preventing eviction, funeral expenses, and certain home repairs.
- The Bipartisan Budget Act of 2018 and final hardship regulations relaxed the federal safe-harbor rules: plans may choose whether to require a plan loan first, and plans may not suspend employee contributions after hardship distributions made after December 31, 2019.
- Previously untaxed hardship distributions are generally included in income; an additional 10% tax may apply before age 59½ unless an exception applies, so the net amount depends on the participant's facts rather than one universal illustration.
- Hardship withdrawal rates are context for the American Distress Index's Safety Net & Buffer domain, which uses the personal saving rate; Vanguard notes that plan design and rule changes have also pushed its rate up.
Related data
- Vanguard hardship withdrawals →6%, 2025
- 401(k) Loan Outstanding Rate →13%, 2025
What Qualifies as a Hardship Withdrawal?
The IRS defines a hardship distribution as one made for an immediate and heavy financial need, limited to the amount necessary to meet that need. Plans may, but are not required to, offer hardship distributions, and the plan document controls the qualifying criteria.
- Certain medical, funeral, tuition, principal-residence purchase, foreclosure-prevention, home-repair, and federally declared disaster expenses may qualify under the safe-harbor rules
- The Bipartisan Budget Act of 2018 and final hardship regulations relaxed the federal rules; beginning with the 2019 plan year, a plan may choose whether to require a plan loan first
- Plans may not suspend employee contributions after hardship distributions made after December 31, 2019
Why Track Hardship Withdrawals?
Vanguard reports that the share of participants using a hardship-withdrawal option rose from 2.3% in 2019 to 6% in 2025. That series shows increased use; it does not by itself establish why participants withdrew money. Current cost context includes grocery prices 31.9% above January 2020 as of September 2026, computed from the seasonally adjusted BLS Food-at-Home CPI, and a household debt-service ratio of 11.11% of disposable income.
How a Hardship Withdrawal Differs from a 401(k) Loan
A plan loan is scheduled to be repaid to the account. A hardship withdrawal cannot be repaid or rolled over and permanently reduces the account balance. Previously untaxed amounts are generally included in gross income. An additional 10% tax may apply before age 59½ unless an exception applies.
The Long-Term Cost
The amount withdrawn no longer participates in future investment gains. The actual tax cost and lost growth depend on the participant's tax treatment, age, investment returns, and time horizon, so this page does not publish one universal dollar illustration.
State-by-state differences
Hardship withdrawal rules are set by federal law (IRC §401(k)) and individual plan documents, but state income tax treatment varies significantly — some states tax the distribution while others do not.
| State | Key difference |
|---|---|
| California | California generally includes taxable early distributions in income and may impose an additional 2.5% state tax. Federal and California exceptions can apply, so neither additional tax is automatic. |
| Texas | Texas has no individual state income tax. Previously untaxed hardship withdrawals are generally subject to federal income tax, and an additional 10% federal tax may apply unless an exception does. |
| Florida | Florida has no individual state income tax. Federal income tax generally applies to previously untaxed amounts, and an additional 10% federal tax may apply unless an exception does. |
| Illinois | Illinois exempts retirement income from state income tax, including early distributions from 401(k) plans. Hardship withdrawals are not subject to Illinois income tax. |
| New York | New York taxes hardship withdrawals as ordinary income. New York's taxation of 401(k) distributions depends on residency and the type and tax treatment of the distribution, rather than simply whether the money is transferred out of state. |
Questions about hardship withdrawal
Do I have to pay back a hardship withdrawal?
No. Unlike a 401(k) loan, a hardship withdrawal cannot be repaid to the plan. Previously untaxed amounts are generally included in income, and an additional 10% tax may apply before age 59½ unless an exception applies.
Can I take a hardship withdrawal to avoid foreclosure?
Preventing eviction from or foreclosure on your principal residence is an IRS safe-harbor category, but the plan document determines whether hardship withdrawals are available and which criteria apply. The amount is limited to what is necessary to meet the need.
How much can I withdraw as a hardship distribution?
You can withdraw your elective deferrals (your contributions) and, under many plans, employer matching contributions and their earnings. The amount is limited to what's necessary to satisfy the financial need, including taxes and penalties you'll owe on the distribution.
What changed in the federal hardship-withdrawal rules?
The Bipartisan Budget Act of 2018 and final hardship regulations changed the federal safe-harbor rules. Beginning with the 2019 plan year, a plan may choose whether to require a plan loan first. Plans may not suspend employee contributions after hardship distributions made after December 31, 2019. Check the plan document because plans are not required to offer hardship distributions and may set plan-specific criteria.
Is a hardship withdrawal better than a 401(k) loan?
A plan loan is scheduled to be repaid to the account, while a hardship withdrawal is permanent. Tax treatment, plan terms, repayment risk, and a participant's circumstances differ, so this page does not characterize one option as universally better.
Related terms
- Emergency FundCash savings reserved for unexpected expenses. Guidelines recommend 3-6 months of essential expenses. Most Americans fall far short.
- Financial DistressDifficulty meeting financial obligations with available income and resources.
- Debt Service RatioRequired minimum debt payments as a percentage of disposable personal income. 11.11% in Q2 2026, about one in every nine dollars of after-tax income.
- Living Paycheck to PaycheckHaving little or no money left after monthly expenses, with no savings buffer between paychecks.
- Chapter 7 BankruptcyA bankruptcy process that can discharge many debts and may involve selling nonexempt property to pay creditors.
- ForbearanceA pause or cut in your mortgage payments for a set time. The skipped amount is still owed, and how it's repaid depends on the agreement.
- Hardship LetterA formal letter to your mortgage servicer explaining your financial hardship and requesting relief options like forbearance or loan modification.
- Housing Cost BurdenSpending more than 30% of household income on housing costs, a measure the Census Bureau uses; more than 50% is severely cost burdened.
Sources and method
The card shows the share of participants in Vanguard-administered plans offering hardship withdrawals who took one, not a national rate for all retirement plans. The card and chart read the stored series, print at its published precision and provide exact plotted values in the downloadable CSV.
- Vanguard — How America Saves 2026, at institutional.vanguard.com
- Internal Revenue Service — 401(k) Plan Hardship Distributions, at irs.gov
- Internal Revenue Service — Hardship Distribution FAQs, at irs.gov
- Federal Reserve — Survey of Consumer Finances, at federalreserve.gov
- Vanguard, How America Saves 2026, at workplace.vanguard.com
- New York Department of Taxation and Finance, at tax.ny.gov
We write with assistance from AI tools. Figures come from the data and sources named on this page.