401k & unemployment benefits

[Associate920]

What is the name of your state (only U.S. law)? Texas

If I decide to cash in my 401k, will this affect my unemployment pay? We're struggling to make ends meet due to being unemployed and hours being cut with my husband's job. I did not want to do anything until I know what I'm up against. These days, seems like everyone wants you to strugle more than necessary.

Thank you
Nee

[Andy0192]

Generally speaking, cashing in your 401(k) is a really bad idea as a source of money.

Money that is withdrawn prior to the age of 59½ typically incurs a 10% penalty tax. This penalty is on top of the "ordinary income" tax that has to be paid on such a withdrawal.

You will get some cash, but the price you will pay for gaining access to that cash is very high. Also, realize that money in a 401(k) is generally safe from creditors, so if you are in a difficult position, you might buy yourself a few months now, but you'll likely be selling yourself short in the future to do so.

Check with a financial advisor who is familiar with your finances & situation.

[cbg]

Excellent response, Andy.

[commentator]

Unemployment insurance benefits are not, repeat, not based on your income. If you decide to cash out your 401K and live on it along with your unemployment benefits, or your husband's benefits, you can do this. You do not need to report it to the unemployment office. The question they ask a claimant to answer to certify for benefits each week is "Did you do any work for which you have been paid or will be paid?" a 401 K is not pension, vacation or severance pay, either.

That said, it's still a lousy idea. In the midst of a time when you need money the worst, you're paying a substantial penalty for using that money. Be sure you save out about a fourth of it to pay in on your federal income tax for this year. There goes any chance of a tax refund.

[Associate920]

Thank you for your information. There is a question that asks if you've received retirement or pension and this prompted my concern in cashing in my 401k should I decide to do. We're at the wire here but have hopes that it will pass soon. Again thanks to your responses, I do appreciate them.