401K Withdrawl Prior to Filing for Unemployment

[mewmew78]

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

After working for my company for 13 years, our office is closing within the next 60 days. I will receive a severance package that should get me through a of couple months, and I was planning on filing for unemployment so that it would kick in after severance runs out in case I can't find work.

I have roughly $22,000 in credit card debt that I desperately need to pay off before my severance pay ends. Otherwise, I won't be able to make my credit card payments (or if I choose to pay my credit card bills, I won't be able to afford my mortgage). I'm in hardship programs on the credit cards, so I no longer have insurance on them and will need to continue paying them throughout my unemployment.

I learned today that in the state of Indiana, I have to report any withdrawals from my 401K. My question is, if I withdraw ONLY what I've contributed (about $30,000), and do so BEFORE I file for unemployment, would this affect my unemployment benefits? I can take a cash withdrawal the day after my employment ends. I was going to postpone filing for unemployment for about a month after I completed the cash withdrawal. The cash from my 401K would immediately be spent on paying off my credit cards, not monthly bills. I'm still concerned the unemployment office will consider this income (even if I'm only withdrawing my own contribution, not my employer's) and it will postpone my eligibility.

I'm just trying to find a solution for getting my monthly outgoing expenses down without affecting my unemployment benefits. I've already been looking for work and can't find anything comparable, in salary, to what I'm currently making. Any advice would greatly be appreciated!

 

[swalsh411]

I was unaware Indiana considered a 401k withdrawl to be income. Where did you learn this?

Considering a hardship withdrawal isn't reported on the quarterly unemployment wage reports (which is what unemployment uses to make sure you haven't been working and not telling them) I don't see how they would ever know about it.

 

[cbg]

Federal law and, I believe by now, all states, consider 401k withdrawals to be income, if they are not taken in the form of a loan which is then paid back. It's taxable and you get a 1099.

I will, however, have to take the poster's word that it is considered income for unemployment purposes.

 

[racer72]

Federal law and, I believe by now, all states, consider 401k withdrawals to be income, if they are not taken in the form of a loan which is then paid back. It's taxable and you get a 1099.

In addition to the 1099, you will also have to pay a 10% penalty for the early withdrawal too. Figure that into your tax planning for next year.

 

[Zigner]

Why not file for unemployment right away? Your severance won't prevent you from collecting...

 

[cbg]

In addition to the 1099, you will also have to pay a 10% penalty for the early withdrawal too. Figure that into your tax planning for next year.

I almost included that, but decided that it wasn't relevant to the question of whether it was income or not. Good point, though.

 

[csi7]

My 401K withdrawal of the base employer plan was reviewed AFTER my long-term unemployment benefit was finished.

It would have affected my claim for one week. However, I had submitted the 401K earnings in my original unemployment claim and was told it was not a part of the earnings. That meant the withdrawal was fine in my case.

The rules keep changing on this, though.

I would go ahead and file your unemployment claim the first day possible. You are not going to be paid for the first week.