The Most Dangerous Move You Can Make With Your 401(k) To Put Your Mortgage at Risk 

More Americans are taking early withdrawals from their 401(k) accounts to pay emergency expenses such as mortgage payments.

But that’s a dangerous game to be playing with the money meant for your retirement.

New data shows that the average 401(k) balance fell by 4% to $141,000 at the start of 2026. The average individual retirement account balance was also down 4% to $131,380 in the first quarter of 2026, according to data released on Thursday from Fidelity Investments.

But this has been an ongoing occurrence for the better part of the past 18 months. 

In 2025, 6% of people enrolled in Vanguard 401(k) plans made "hardship withdrawals" from their accounts, according to the company's 2026 report on Americans' savings habits. That's up from 5% in 2024 and 3.6% in 2023.

Hardship withdrawals allow people to take money out of their 401(k) early for an "immediate and heavy" financial need. The most common reason for taking a hardship withdrawal is making a rent or mortgage payment to prevent foreclosure or eviction, according to Vanguard.

There’s no question that Americans are feeling the squeeze. Prices are rising at the fastest pace in years. Inflation rose at 3.8% from last year, and with the ongoing Iran war, there doesn’t seem to be an end in sight.

But while tapping your 401(k) to pay your bills may seem like your only option, if you’re a homeowner, you should understand the risks. 

"A 401(k) is intended to fund your retirement, and withdrawing money prematurely can lead to significant penalties and lost retirement savings," says Steven Sarrel, CPA and partner at Raines & Fischer LLP. It should be considered a " last resort" option.

Your 401(k) and the untapped potential

A 401(k) is a retirement savings option provided by most employers. If you participate, a portion of each paycheck is automatically contributed to the account. In many cases, the employer matches part of these contributions. Employees choose which funds to invest in, aiming to build a financial cushion for their retirement years.

A 401(k) is an employer-sponsored retirement plan, while an individual retirement account, or IRA, is set up by an individual through a bank or investment firm.

"The main difference between a 401(k) and an IRA, as it relates to real estate transactions, is you can typically take a loan from a 401(k), which allows money upfront for things like down payments or major repairs, and you pay it back through payroll over time," says Brian Kuhn, a financial adviser at Wealth Enhancement Group. "IRAs don’t allow these types of loans."

An analysis of nearly 25 million 401(k) accounts by Fidelity Investments shows the average balance rose a substantial 11% to $146,100 in 2025, a significant gain despite market volatility. At a time when inflation is still incredibly high and the stock market is in flux due to the war in Iran, it's easy to understand why 401(k) funds look attractive.

Even President Donald Trump has touted the benefits of the accounts, while considering adjusting regulations to allow Americans easier access to tapping into 401(k)s to buy homes without penalty.

And yet, experts still maintain that this should be avoided at all costs.

Can I use my 401(k) to pay my mortgage?

Yes, accessing money in your 401(k) to pay your mortgage would qualify as a hardship withdrawal, but only under certain circumstances, which is why it is ill-advised.

"Although this option can provide relief in times of financial distress, hardship withdrawals can drastically affect retirement savings and must be avoided if possible," warns Leon Turkin, a mortgage broker at Turkin Mortgage.

Hardship withdrawal—unlike a 401(k) loan—does not require repayment. However, taxes are applicable. Also, there's a 10% penalty for early withdrawal in most cases, if the account holder is under 59.5 years of age.

"Your mortgage is due every month for years, so consistently trying to access your 401(k) to pay the mortgage isn’t a great strategy," says Kuhn.

What qualifies as a hardship withdrawal from your 401(k)?

According to IRS regulations, an employee is automatically considered to have an "immediate and heavy financial need" and approved to take a hardship withdrawal from their 401(k) if the distribution is for any of the following reasons:

• Medical care expenses for you, your spouse, or your dependents
• Payments necessary to prevent eviction from your principal residence or foreclosure on the mortgage on that residence
• Costs directly related to the purchase of your principal residence
• Certain expenses to repair damage to your principal residence
• Tuition, related educational fees, and room and board expenses for you, your spouse, or your dependents
• Funeral expenses for you, your spouse, or your dependents

"It’s advisable to seek tax guidance from a CPA to confirm if your financial need qualifies," says Kuhn.

Alternatives to pulling money out of your 401(k) to pay your mortgage

Before taking money out of your 401(k) to pay your mortgage, there are many steps you can—and should—take.

"If you’re facing difficulty with mortgage payments, cut your expenses and consider getting a part-time job," says Chad Faulkenberry, financial adviser and managing director at Journey Strategic Wealth. "A side hustle, freelance work, or temporary contract job can help you stay on top of your mortgage payments and provide immediate relief."

Then contact your mortgage provider to explore options like forbearance or loss mitigation programs. 

"Loan modification programs can always assist in adjusting your loan terms so that it is easier to pay," says Turkin. "Perhaps a short negotiation with your lender for temporary forbearance might get you the help you need."

Next, consider alternate avenues.

"It’s better to explore other options such as refinancing your mortgage to lower monthly payments or looking into personal loans before dipping into your retirement account," says Sarrel. "As a CPA, I always advise clients to treat their 401(k) as a long-term investment and not an option to use before retirement."

If you have considerable equity in your home, "a home equity loan or HELOC would provide cash at lower interest rates than a credit card or personal loan," according to Turkin. "If you access your 401(k) instead, you are sacrificing future financial security."

Julie Taylor contributed to this report.