Q: Erick, Is there any industry information available on employee utilization of hardship withdrawal provisions?
A: The International Foundation’s 2024 Employee Benefits Survey found that utilization of hardship withdrawal provisions averaged 5.6% of participants for 401(k) plans, 4.9% for Roth 401(k) plans and 2.3% for 403(b) plans. In addition, a preview of Vanguard’s How America Saves 2025 report showed that 4.8% of participants used hardship withdrawals when offered in 2024, up from 3.6% in 2023 and 2.8% in 2022. The increase in hardship withdrawals was particularly notable in the second half of 2024, largely due to natural disaster declarations that enable participants to take out money to repair homes following natural disasters.
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Can Employees Withdraw From Their 401(k) After a Wildfire or Other Natural Disaster?
Possibly. COVID-era relief has ended, but SECURE 2.0 created permanent rules for qualified disaster recovery distributions. If a plan adopts this optional feature, participants whose principal residence is in an area covered by a federally declared major disaster, and who suffered an economic loss, may withdraw up to $22,000 per disaster within the eligible time period. These distributions are not subject to the 10% early withdrawal tax, the income can be spread over three years, and amounts may be repaid to the plan within three years. Plans may also allow larger loans and delayed loan repayments for affected participants. Regular hardship withdrawals may also be available under the plan’s terms.
Retirement Partners of California helps employers understand which relief options their plan offers and how to communicate them. Review your plan document and consult your ERISA counsel, tax advisor, or advisor for details.
Retirement Partners of California Can Help!
We’ll design an Employee Financial Education Plan to help improve your 401k participant results.
Disclosures, Sources, and Footnotes
For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.
Kmotion, Inc., 12336 SE Scherrer Street, Happy Valley, OR 97086; www.kmotion.com
©2024 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.
RP-265-0525 Tracking #750406 (Exp. 06/27)
