Should You Take Money From Your 401(k)? Questions to Ask First

Record numbers of Americans are taking money out of their retirement savings to handle financial emergencies, new data shows.

In 2025, 6% of workers with 401(k) accounts (retirement savings plans offered by employers) at Vanguard took hardship withdrawals - that's triple the normal rate before COVID-19. This trend signals that many people are struggling financially.

What is a hardship withdrawal? A hardship withdrawal lets you take money from your 401(k) before retirement for specific emergencies like: • Medical bills • Avoiding foreclosure (losing your home) • Preventing eviction from rental housing • Disaster recovery • Domestic abuse situations

The costly catch Taking money early from your 401(k) comes with serious financial penalties: • You'll pay income tax on the amount withdrawn • If you're under 59½ years old, you'll pay an extra 10% penalty • You lose future growth on that money (compound interest - earning money on your earnings)

For example, withdrawing $10,000 could cost you $3,500 or more in taxes and penalties, leaving you with only $6,500.

Before you withdraw, ask yourself: 1. Have I explored all other options? (personal loans, payment plans, side income) 2. Can I repay this money to my retirement account later? 3. Will this withdrawal solve my problem or just delay it?

Financial experts recommend treating 401(k) withdrawals as an absolute last resort. The money you take out today could mean thousands less in retirement income later. If you must withdraw, take only what you absolutely need.

This is an AI-generated summary. Read the original article at: https://www.marketwatch.com/story/3-questions-to-ask-before-raiding-your-401-k-for-a-hardship-withdrawal-d514e9b2?mod=mw_rss_topstories