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Record Number of 401(k) Hardship Withdrawals Seen in 2022


Inflation and higher prices overall are causing more Americans to take 401(k) hardship withdrawals.

The Wall Street Journal, citing Vanguard research, reported that a record 2.8% of the five million people in 401(k) plans run by the investment behemoth tapped their retirement savings in 2022 for financial hardship reasons. It’s an increase from 2.1% in 2021 and a pre-pandemic average of about 2%.

It added that the increase is partly driven by several government moves since 2018 to loosen hardship withdrawal requirements.

“In September, credit card balances returned to pre-pandemic levels,” the Journal’s Anne Tergesen wrote. “In December, Americans saved 3.4% of monthly income, down from 7.5% a year earlier. Companies including Inc. and Microsoft Corp. have recently announced layoffs.”

In 2018, Congress removed a requirement to take a 401(k) loan before a hardship distribution. In 2020, the Covid-19 pandemic led Congress to allow those affected by the virus and shutdown to pull as much as $100,000 from individual retirement accounts or 401(k)-type plans without the 10% penalty. In December, Congress passed a law that eliminates the requirement for savers to submit evidence of a hardship before allowing the withdrawal. It allows those affected by federally declared disasters to take up to $22,000 penalty-free.

“The changes underscore a growing acceptance among lawmakers, employers, and workers of the idea that 401(k) and individual retirement accounts, which hold $20 trillion in wealth, do double duty as emergency funds,” Tergesen explained. 

She noted that auto-enrollment might inadvertently be another reason for the increase in hardship withdrawals. Quoting Dave Stinnett, head of strategic retirement consulting at Vanguard, she noted lower-paid workers, a group that tends to rely more heavily on hardship distributions, are being swept into retirement plans in greater numbers.

Overall, “The increase in hardship withdrawals at Vanguard was in line with broader trends,” Tergesen concluded.