07 Sep Can I get unemployment if I take money out of my 401(k)?
Q. If you take money out of your 401(k), can you still collect unemployment or does that get terminated?
A. We’re sorry to hear you lost your job.
Those who have lost jobs can gain access to their 401(k) plans.
Before you take any distributions you should check with your tax preparer or financial advisor about the tax implications and possible penalties, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.
He said any withdrawals can have an impact on unemployment benefits.
Normally, you would face a penalty if you take money out of your 401(k) earlier than age 59 ½, Gobo said. But under the CARES Act, you can take an early distribution without the penalty if it’s taken for a coronavirus-related reason.
And even before the CARES Act, you could take a penalty-free withdrawal at age 55 if you lose your job, he said.
You would owe taxes on the withdrawal at ordinary income tax rates.
Because unemployment is a state-run program, each state has different rules regarding the impact 401(k) distributions have on unemployment eligibility, Gobo said.
“Some states regard 401(k) distributions to be considered work income, thereby disqualifying you from unemployment benefits,” he said. “New Jersey reduces your unemployment benefits by half of your 401(k) withdrawals.”
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This story was originally published on Sept. 7. 2020.
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