04 Nov Will a 401(k) withdrawal hurt my unemployment benefits?
Q. I was looking to take a COVID 401(k) withdrawal. Do I have to claim this with my unemployment benefits?
— Planning ahead
A. We’re sorry to hear you’re out of work.
You will not need to claim a 401(k) withdrawal on your unemployment benefits.
Distributions from a qualified retirement plan such as a 401(k) or IRA would not affect your ability to claim benefits, said Kenneth Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton.
He said as you consider taking a 401(k) withdrawal to supplement your income, it’s important to understand the requirements to qualify for a coronavirus-related withdrawal.
“The CARES Act allows individuals to withdraw up to $100,000 from a 401(k) without penalty if they meet certain requirements,” he said.
Before the passing of the CARES Act, early withdrawals from a 401(k) account incurred a 10% penalty. The CARES Act has temporarily suspended the 10% penalty for those impacted by COVID-19.
“To qualify, you, your spouse or dependent must be diagnosed with COVID-19 or have experienced financial hardship as a result of being quarantined, laid off or furloughed, having work hours reduced, or being unable to work due to a lack of childcare,” he said. “From a tax perspective, the CARES Act has allowed coronavirus-related withdrawals to be taxed over a three-year period, instead of incurring the entire tax burden in the year that the distribution is taken.”
Email your questions to moc.p1606859675leHye1606859675noMJN1606859675@ksA1606859675.
This story was originally published on Nov. 4, 2020.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.