Here's how to use your 401(k) as an ATM, and why you probably shouldn't

There are more ways than ever to use your retirement account as an ATM. But those transactions come at a cost.

More Americans are using 401(k) retirement accounts as personal ATMs.

Last year, 6% of Vanguard retirement savers took hardship withdrawals from their 401(k) accounts, an all-time high. Hardship distribution rates have risen dramatically in recent years, up from 1.7% in 2020.

Hardship withdrawals have spiked among Fidelity retirement savers, as well.

On the whole, American companies and their employees are doing a better job of saving for retirement. For example, 61% of Vanguard retirement plans now automatically enroll new workers in 401(k)s, up from 54% in 2020. Auto-enrollment tends to raise saving rates.

The rise in hardship withdrawals suggests, however, that some retirement savers are financially fragile: Living paycheck to paycheck, and unable to amass enough savings outside their retirement accounts to cover an emergency.