26 Jan If I take from my 401(k), what happens to unemployment benefits?

Q. I am currently on unemployment benefits. If I make a partial distribution from my 401(k) will it affect my unemployment benefit?
— Needing cash

A. We’re sorry to hear you’re out of work.

There are several reasons why you might get disqualified from receiving unemployment benefits in New Jersey.

These include if you commit misconduct or do not actively seek or accept new employment, said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

Withdrawing from a 401(k) is not one of those reasons, and it’s not considered when collecting unemployment, D’Agostini said.

Neither are IRA withdrawals, she said.

“You should be aware however, that amounts withdrawn will be fully taxed at ordinary income tax rates, and there is a 10% penalty if you have not reached the age of 59 ½,” she said. “Many plans may allow for a hardship withdrawal for this purpose, and you can avoid the 10% early withdrawal penalty.”

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This story was originally published in January 2024.

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