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Will Drawing Out My 401k Affect My Unemployment Benefits?

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Ian Marshall Profile
Ian Marshall answered
Though it is possible to make a withdrawal 401k, it will however affect your overall unemployment benefit.  Your unemployment benefits will be assessed alongside the amount that you withdraw from your 401k plan. This includes whatever you have already contributed to the plan, even though, in effect, it is money that has already been earned, and money that has further already been contributed by your employer. Once this has been assessed, all payments towards you unemployment benefit will cease to be paid. However, this stoppage is not permanent, for instance, if you cash out the total amount of your 401k plan which equates to say £2,000 and your weekly unemployment support s £350, the two amounts will be assessed and divided (2000/350 = 5.7), this sum, 5.7, equates to the amount of weeks your unemployment benefit will cease to be paid into your account.

This penalty is incurred because any form of cashing out of a plan such as 401k is regarded as a type of income, which is the reason behind why whoever administrates your 401k plan will hold around 20% for specific federal taxes. Owing to this fact, it is then up to you to pay these state taxes during the annual taxation period. So, even though you unemployment benefits will be affected if you do decide to cash in your 401k plan, you will however not be made liable for any payment towards your income tax if this should fall within your period of unemployment, that may be incremented on any form of income that has been earned during that tax year, which of course includes monetary assets that have been extracted from your 402k plan. A similar system further applies to the assets earned by individuals that fall into the bracket of student.
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Anonymous answered
My husband receives 390.00 a week in Indiana for unemployment benefits and we want to cash in 401 for 16,000.00 Will his unemployment benefits be stopped for this?
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Anonymous
Anonymous commented
I just spoke to a supervisor at the unemployement office because I was getting conflicting answers to this question. It can affect when you can receive your benfits. It can delay your payments from the unemployment office. It will not decrease the amount of time that you can collect. It is up to your unemployment officer as to how long your benefits will be post-poned. I live in Indiana as well. He also said it depends on the amount that you would be taking out. They use a chart.
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Anonymous answered
Yes it will effect your unemployment. They will take the GROSS amount that you are cashing out ( including what you contributed, even though it is money you already earned, and what your employer contributed) and stop your payments. For example, if you cash out your 401K and the gross amount is $2,000, the check you receive is $1600, if you receive a weekly check (before taxes) from unemployment for $350, they take the Gross amount of the 401K divided by $350 (2000 / 350 = 5.7) and get the total number of payments they would have paid you, 5.7, and stop your unemployment benefits for 5.7 weeks. The unemployment office told me it doesn't effect it (just some rep) and I cashed mine out only to find out this.
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Anonymous
Anonymous commented
This is absolutely true...I had to find out the hard way also...I ask the same question of a rep at the office and was told it was ok and wouldn't affect my payments but it does and you do have to wait those weeks before it starts back up again.
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Anonymous answered
I live in Massachusetts and this is my question, If you are receiving unemployment benefits and you need to withdraw money from your 401k  because of financial problems is this going to affect unemployment benefits?
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Anonymous
Anonymous commented
I m in the same situation. I got cut off from unemplymnt had no choice but to wthdrw prt of my retirement. Now Cngress extnded it and it may effect me. I did not want to use it, but had no choice,. As stupid as this sounds what should I do return it? Also unemployment is just enough to cover basic expenses, What happens if your car breaks down and you need to use retirement money to repair it, will you then not recieve unemployment? How are we suposed to get our lives back on track hmmm
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Anonymous answered
In Ohio I spoke with the Unemployment office after my layoff. They told me if I touched a penny of my 401k in a cash out, then I'd have to wait a whole YEAR for my unemployment benefits to begin. That scared me off cashing in the 401k. But now that I just found a job (7 months later) and am barely hanging on to my home, I wonder if I should try to cash it in and start it all over. Of course this is NOT my first choice, but I didn't choose to be laid off and have to accept a job now paying 50% of my previous one.
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Anonymous answered
MY husband just got laid off and was told it was undetermined if he would be called back. This practice is so double standard, because it allows the employer to say my husband is an employee. We were told that he could not cash in his 401k because he's still considered an employee. However, hes forced to collect UNEMPLOYMENT because he has no job.
We want to know if we can cash in our 401K without it affecting his unemployment? We can not survive on my pay and his unemployment without it dragging us into financial ruin. We are desperate for an answer.

Madness in Michigan
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Anonymous
Anonymous commented
We are in this exact same boat. We called our 401K and they still showed my husband listed as an active employee, and that he would have to be listed as inactive in order to do a withdrawal. We were torn, because we also dont know if the plant will open back up and didn't want him to be 'terminated' so to speak, but I supposed the company could always hire him back if they open back up. I dont know....but this is all a big slap in the face. From here on out, we will prepare for the future better
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Anonymous answered
I took a hardship loan on my 401k aprox $11k , bi-weekly payments were taken out of my payroll check, when I got laid-off I did not have the means to pay the balance of the loan back to so
they paid the loan back and showed it as a dispursement and taxed me on the 11k.   How can and will this effect unemployment?   CA-
nettie Profile
nettie answered
The only thing that affects your unemployment benefits is a job,so no your 401K withdrawal will not affect your unemployment.....good luck
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Anonymous
Anonymous commented
Are you sure about this? I am needing to do the same thing and I keep hearing conflicting answers It makes sense that it would not affect it because you still have no job
Anonymous
Anonymous commented
I have to say after reading this answer.... Each week when I call in the Unemployment, the recording asks if you've received vacation pay, severance pay or any other type of pay.
So these things do affect it.. Somehow. I just don't know about the 401K deal specifically.
DOES ANYONE KNOW FOR SURE? Thanks!
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Anonymous answered
I live in denver co, my question is ,if I close out my 401k to pay off bills can I collect unemployment benefits. I was layed off I am 59.5 years old.
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Anonymous answered
I was reading on Michigan's unemployment web sight that a 401k could only be counted in stopping my unemployment if less than 50 percent was paid in by me. If more than 50 percent was paid in by me than it wouldn't affect it.  We'll see.
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Anonymous answered
Cashing out a 401k is considered income, this is why whomever administers your 401k will hold 20% or so for federal taxes, and then it's up to you to pay your state taxes come time tax season. However, if you're unemployed you shouldn't be liable if you cashed the 401k out during a period of unemployment to pay the income tax on that earned income (cashing out of the 401k). If you are a student, I would imagine the life time learning credit or hope credits would cover any applicable federal/ state taxes assessed on the income your receive from cashing out your 401k.
nettie Profile
nettie answered
It should not because that is not one of the questions asked when you sign up for unemployment they know everything about you, I think the questions are to see how truthful you are going to be I see no reason why your 401K withdrawal would make a difference you are still unemployed, you will have to file the withdrawal on your income taxes....hope this helps
tina french Profile
tina french answered
We live in the state of illinois. My husband is laid off and we have to pay state taxes this year. Can we be on a payment plan or do we have to submit all money owed by the due date

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