For years, the most common reason a worker cracked open a 401(k) under hardship rules was a medical bill. That is no longer the case. Preventing a foreclosure or eviction has become the top qualifying emergency cited by participants in Vanguard’s retirement plans, according to the firm’s 2025 How America Saves report, which tracks roughly five million savers. At the same time, the overall share of participants taking hardship withdrawals hit a record: 6 out of every 100 account holders pulled money early, the highest rate Vanguard has documented since it began publishing the annual study.
The reversal is striking. In earlier editions of the report, medical expenses routinely claimed the largest single share of hardship requests, typically cited by about one in four applicants. Housing-related withdrawals trailed by several percentage points. The report does not publish a precise percentage breakdown by qualifying category for the current year, so the exact margin by which housing overtook medical expenses is not publicly available. Still, the directional shift is clear: with rents in many metro areas still well above pre-pandemic levels and mortgage delinquency rates creeping higher, the threat of losing a home has overtaken illness as the crisis that drives the most savers to tap accounts built for decades-long growth. The report also does not disclose the median or average dollar amount of a hardship withdrawal, limiting what can be said about the typical size of these distributions.
Vanguard’s published commentary on the report describes the pattern as a “meaningful shift” in the composition of hardship withdrawals, noting that housing-related distress moved from a secondary category to the primary driver. The firm frames the trend as a signal about broader financial pressure on American workers, not simply a quirk of plan administration. (Because Vanguard has not made the full text of its research commentary freely available online, this characterization is drawn from the firm’s summary language accompanying the How America Saves release and cannot be independently verified against a specific page or press release.)
What the rules actually allow
The IRS permits 401(k) participants to take early distributions for a short list of financial emergencies. Under the agency’s safe-harbor guidelines, payments necessary to prevent eviction from a principal residence or foreclosure on its mortgage qualify automatically as an “immediate and heavy financial need.” Medical bills, tuition, funeral costs, certain home repairs, and expenses tied to federally declared disasters round out the list.
A worker facing eviction does not have to prove that no other option exists; the expense itself clears the bar. The same applies to medical costs, per the IRS FAQ on hardship distributions. But qualifying is only half the equation. The money withdrawn is taxed as ordinary income, and participants younger than 59-1/2 typically owe an additional 10% early-withdrawal penalty. A worker in the 22% federal tax bracket who pulls $15,000 to cover back rent could lose nearly $5,000 to taxes and penalties before a dollar reaches the landlord.
Legislative changes have also lowered the procedural barriers. The Bipartisan Budget Act of 2018 eliminated the requirement that participants first exhaust plan loans before requesting a hardship distribution. The SECURE 2.0 Act of 2022 went further, introducing a penalty-free emergency withdrawal provision of up to $1,000 per calendar year, though participants must repay the amount before taking another such withdrawal. Those rule changes may partly explain why more workers are turning to their 401(k) accounts when a housing crisis hits: the friction involved in getting the money out is lower than it was a decade ago.
How representative is the data?
Vanguard’s report offers one of the clearest windows into hardship withdrawal behavior, but it is one window. The firm administers plans for roughly five million participants, a significant slice of the market yet far from the full 401(k) universe, which covers more than 70 million active participants nationwide. No federal agency currently publishes a breakdown of hardship withdrawals by qualifying category. The Department of Labor collects plan-level data through annual Form 5500 filings, but those filings do not separate housing-related withdrawals from medical or educational ones.
That gap matters. Without comparable figures from Fidelity, Empower, Schwab, and other major recordkeepers, it is impossible to say definitively that the pattern Vanguard sees applies across the board. Vanguard’s participant base skews toward mid-to-large employers; workers at smaller firms or in lower-wage industries may face even steeper housing pressure but show up in different data sets.
Court-level eviction filings offer a partial cross-check. Researchers at Princeton’s Eviction Lab have documented persistently elevated filing rates in Sun Belt cities and other fast-growing metros since pandemic-era protections expired, with several jurisdictions exceeding their pre-2020 baselines. If hardship withdrawal spikes map onto those same geographies, the housing-distress explanation gains strength. If they diverge, other factors, such as greater participant awareness of withdrawal options or changes in how plan sponsors communicate them, may deserve more weight.
What it costs workers over the long run
The immediate relief of avoiding eviction is real. The long-term price is steep. A 35-year-old who withdraws $15,000 and never replaces it could forfeit roughly $80,000 in potential growth by age 65, assuming a 6% average annual return, a figure consistent with standard compound-interest projections used by retirement planning calculators. That lost compounding is invisible in the moment, which is precisely why financial planners urge workers to treat hardship withdrawals as a last resort.
Alternatives exist but are not always practical. A 401(k) loan lets the participant borrow from the account and repay with interest, avoiding the tax hit, but the balance must be repaid within five years (or upon leaving the employer, whichever comes first). The SECURE 2.0 penalty-free emergency provision caps out at $1,000 per year, far too low to cover most eviction or foreclosure emergencies. Some employers have begun offering sidecar emergency savings accounts linked to retirement plans, though adoption remains limited as of mid-2026.
For workers already behind on rent or mortgage payments, the calculus is blunt: losing a home carries cascading costs, from damaged credit scores to school disruptions for children, that can dwarf a retirement shortfall. The fact that so many are making that trade-off speaks less to poor planning and more to the widening gap between what people earn and what housing now demands.
When the retirement safety net doubles as a housing lifeline
When retirement accounts become emergency cash buffers at record rates, it signals a failure upstream. Wages that do not keep pace with shelter costs, thin or nonexistent emergency savings, and a rental market where a single missed paycheck can trigger an eviction filing all funnel pressure toward the one pool of money many workers cannot easily access: their 401(k).
Policymakers have taken notice. As of early 2026, proposals in Congress range from expanding penalty-free emergency access to creating federally backed renter assistance funds designed to intercept the problem before it reaches a retirement account. Whether any of those measures advance remains uncertain, but the Vanguard data has sharpened the argument that housing affordability and retirement security are no longer separate policy conversations.
Housing policy researchers have long argued that when shelter costs consume an outsized share of income, every other financial goal, including retirement saving, becomes vulnerable. The Vanguard numbers put a sharp point on that argument: when one in roughly 16 savers at a major plan administrator is raiding long-term savings to avoid eviction, the wall between housing policy and retirement policy has effectively crumbled.
The legal framework clearly permits hardship withdrawals for housing emergencies, and Vanguard’s data documents a record share of participants using that option, with foreclosure and eviction prevention as the leading driver. Whether the spike proves temporary or marks a durable shift in how Americans balance shelter costs against long-term savings will depend on broader data, from other recordkeepers, from court filings, and from future federal surveys, that has yet to arrive.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
