Should you Borrow From Your 401(k)? What to Know Before Taking a Loan or Hardship Withdrawal
Borrowing from your 401(k) can help with an urgent expense, but it can also mean another monthly repayment and less money working toward retirement. A hardship withdrawal is more permanent because the money does not go back into the account.
Before using either, ask whether this is a one-time emergency or a sign that money has been running short for a while. Then check the bigger picture too: your savings, beneficiaries and the plans your family would rely on if something happened to you.
Your retirement account can look healthy while everyday money still feels tight. Before reaching into savings you’ve spent years building, it helps to know what that decision could change.
Have you ever opened your 401(k), seen the number has gone up, and thought you should feel a little better than you do?
The account looks healthy. You’ve been contributing for years. On paper, you’ve done what you were supposed to do. And yet the roof still needs replacing. Property taxes have gone up. A parent needs help. Or there simply isn't as much sitting in savings as you would like. That gap is showing up in the latest retirement numbers.
Estate Planning Readiness Check
Before you tap your 401(k), how prepared is the rest of your plan?
Take a few minutes to check what you already have in place, from beneficiaries and key documents to the plans your family may need to rely on.
Educational only — not legal, tax or financial advice.
Fidelity reported that the average 401(k) balance reached a record $155,800 in the second quarter of 2026, up 10.5% in three months. A record 769,000 people also had at least $1 million in their 401(k).
But another number may matter more to most families. Nearly one in five participants (19.5%) had an outstanding 401(k) loan. Hardship withdrawals also rose, with 3% of participants taking one compared with 2.6% a year earlier.
Retirement accounts are growing. More people are also reaching into them. Both can be true. And for most families, that tells us far more than the millionaire number ever could.
Why can your 401(k) be growing while money still feels tight?
Suppose you've built $250,000 in your 401(k).
On paper, that sounds reassuring. It may represent twenty years of steady contributions and leaving the money alone. Then the air conditioning fails. The repair quote lands on the kitchen counter, and there isn't quite enough in savings to cover it comfortably.
And these expenses aren't unusual. The Federal Reserve found that 59% of Americans faced at least one major unexpected expense last year. For 22%, it was a major home or appliance repair.
Sometimes the bill really does arrive before the money is ready for it. You have money. But most of it isn't money you can easily use today. That is the uncomfortable gap many families run into: your 401(k) can be growing while your household still feels short on cash.
Your retirement savings were built for later. The unexpected bill is here now. And once you start wondering whether to borrow from your 401(k), another worry usually follows: If I use this money now, what does that do to retirement later?
Before asking, “Should I take money from my 401(k)?” ask something simpler: “Is this a one-time expense, or is something in my finances no longer working?”
Should You Use Your 401(k) for an Emergency?
Using your 401(k) for an emergency may provide cash now, but it can reduce what remains available for retirement later.
Sometimes families genuinely need to use retirement money. The important thing is knowing what problem you're solving first.
Is this one unusually large bill? Or has money been running short for several months? This is why we're cautious about treating a 401(k) like the emergency drawer in the kitchen. Once you know the money is there, it can become easier to reach for it again.
Before you do, check your savings, whether the expense can be spread out, and whether this is genuinely a one-off. You may still decide to use the 401(k). But first, make sure you're solving the problem rather than creating the next one.
How Does a 401(k) Loan Work?
A 401(k) loan lets you borrow from your retirement account and repay the money over time.
If your employer's plan allows loans, federal rules generally limit how much you can borrow. Most loans must also be repaid within five years, although some loans used to buy a primary residence can have a longer repayment period.
A loan can feel safer because you're paying the money back. But while the loan is outstanding, the amount you've borrowed is generally no longer invested for retirement in the same way, and repayments now have to fit into future paychecks.
If money is already tight, that matters. Changing jobs, losing your job or retiring with a loan still outstanding can also make things more complicated and may have tax consequences depending on how the balance is handled.
That doesn't automatically make a 401(k) loan a bad decision. It simply gives you two questions to answer:
Can I afford the repayment now, and what could taking this money cost me later?
What Is a 401(k) Hardship Withdrawal?
A hardship withdrawal takes money permanently out of your 401(k) to cover certain urgent financial needs.
Unlike a loan, the money doesn't get paid back into your account. It can provide relief when something urgent happens, but taxes may reduce what actually reaches you, and every dollar withdrawn is one less dollar left for retirement.
If you need $10,000, for example, don't automatically assume withdrawing $10,000 will leave you with $10,000 to spend after taxes.
Then look beyond the bill in front of you. What would be left afterward? If something unexpected happened again, how prepared would the rest of your finances be? Sometimes the bigger question isn't whether you can access the money. It's whether everything around it is ready too.
How Much Should You Have in Your 401(k)?
Have you ever opened a retirement thread on Reddit and come away wondering if everyone has saved more than you?
Someone is 52 with $1 million. Someone else says $500,000 isn't enough. Then Fidelity reports a record number of 401(k) millionaires, and suddenly your own balance can feel smaller than it did five minutes ago.But those numbers are missing most of the story.
You don't know whether that person has a mortgage, a pension, a paid-off home, significant debt or three people depending on them. And Fidelity's $155,800 average doesn't know any of those things about you either.
An average is a statistic.
Someone with $150,000 and a paid-off home may be in a very different position from someone with $500,000 and much larger monthly obligations.
Instead of asking, “Do I have enough compared with everyone else?” ask:
“What does this money actually need to do for us?”
Your answer depends on your home, income, Social Security, debts, savings, family and the life you expect to live. Reddit can tell you what other people have but it can't tell you what you need.
How Does Your 401(k) Fit Into Your Estate Plan?
Your 401(k) is also part of what you leave behind, so the beneficiary named on the account matters.
When did you last look at that name? Not the balance. The name. For a lot of families, it has been a while. That makes sense. Life rarely gets organized all at once. You buy a house. Change jobs. Start another retirement account. Children grow up. Parents get older. A will gets signed and put somewhere safe.
Years later, the paperwork may still be there. But your life may have changed around it.
Your 401(k) usually goes to the person named as beneficiary on the account, even if your will says something different. There is another question worth checking too: if you were unable to manage things yourself for a while, who could step in?
Who could pay the bills? Make decisions? Keep things moving?
And if you're not completely sure everything is in order, you're not unusual. Fidelity found that 30% of parents had not created a will and estate plan they felt confident about.
If some of your paperwork is old, that doesn't mean you've done anything wrong. Life moved on while the paperwork stayed still. The goal isn't to make things complicated. It's simply to make sure the people you've named, the accounts you have and the plans you've made still match what you want today. You don't need to fix everything at once, just start by checking one thing.
What Should You Do Before Taking Money From Your 401(k)?
Before borrowing or withdrawing from your 401(k), understand why you need the money, what it will cost, and what else in your financial life may need attention.
Is this one unexpected bill, or has money been tight for a while? If you're considering a loan, check what the repayment would mean for your monthly budget and retirement. If you're considering a hardship withdrawal, understand the possible tax cost and how much would permanently leave the account.
Then check a few other things. Do you have enough set aside for emergencies? Is the right person named on your retirement accounts? If you couldn't deal with things yourself for a while, would someone you trust be able to step in? Would your family know what you have and where to find it if something happened to you? You don't need a huge amount of money for these questions to matter.
You may have a home, a 401(k), some savings, insurance and people you want to make things easier for. That's enough to have a plan worth checking. If you're not sure what is already covered, ourEstate Readiness Calculator is a simple place to start.
It can help you see what you already have in place, what may be missing and what is actually worth dealing with next. You don't need to sort everything out today.
Sometimes it helps just to know where you stand.
This article is for general educational and informational purposes only and is not personalized investment, financial, legal or tax advice. Retirement plan rules vary by employer, and estate planning laws vary by state and can change over time. Before making decisions based on your individual circumstances, consult the appropriate qualified financial, legal or tax professional.
