Receiving unemployment benefits and cashing out 401k

[susan2]

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

I lost my job earlier this year, currently receiving unemployment. Not having found a new job I now need to cash out my 401k. There's only about 5800 in there. I know it is a bad idea, right now I have no choice.

Do I need to report this to the unemployment office? I would receive about 4200 once tax and fees are paid. Part of the 401k was matched by my employer, the one that is in my base period. I am 44.

I have looked on the website and see this, Retirement Pension

You must report any retirement pay to TWC when you apply for benefits or by calling a Tele-Center at 800-939-6631. TWC may be required to deduct your retirement pay from your unemployment benefits. We will mail you a decision on whether your retirement affects your unemployment benefits.

Retirement pay may be deductible from your benefit payments:

Pensions, retirement pay, annuities, and other similar periodic payments are deductible only if based on wages earned from a base-period employer. They are not deductible if based on wages earned from other employers.
Social Security Old Age Benefits (OAB) are not deductible.
Railroad retirement is not deductible.

If we determine that your retirement pay is deductible from your unemployment benefits, then we convert the amount of your monthly pension into a weekly amount and reduce your weekly benefit payment by that amount.


I am confused. Please help.

 

[LdiJ]

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

I lost my job earlier this year, currently receiving unemployment. Not having found a new job I now need to cash out my 401k. There's only about 5800 in there. I know it is a bad idea, right now I have no choice.

Do I need to report this to the unemployment office? I would receive about 4200 once tax and fees are paid. Part of the 401k was matched by my employer, the one that is in my base period. I am 44.

I have looked on the website and see this, Retirement Pension

You must report any retirement pay to TWC when you apply for benefits or by calling a Tele-Center at 800-939-6631. TWC may be required to deduct your retirement pay from your unemployment benefits. We will mail you a decision on whether your retirement affects your unemployment benefits.

Retirement pay may be deductible from your benefit payments:

Pensions, retirement pay, annuities, and other similar periodic payments are deductible only if based on wages earned from a base-period employer. They are not deductible if based on wages earned from other employers.
Social Security Old Age Benefits (OAB) are not deductible.
Railroad retirement is not deductible.

If we determine that your retirement pay is deductible from your unemployment benefits, then we convert the amount of your monthly pension into a weekly amount and reduce your weekly benefit payment by that amount.


I am confused. Please help.

That particular information is related to regular retirement monthly income rather than cashing in a retirement account. However, it would probably be in your best interest to contact the unemployment benefits people to ask your question of them directly.

 

[Chyvan]

contact the unemployment

Not necessary. The safest and foolproof approach is to do a trustee to trustee transfer of your 401k to an IRA, and then cash in the IRA. You only need an IRA savings account so that the money can be there all of 5 minutes, but this little trick changes the entire nature of the funds.

 

[LdiJ]

Not necessary. The safest and foolproof approach is to do a trustee to trustee transfer of your 401k to an IRA, and then cash in the IRA. You only need an IRA savings account so that the money can be there all of 5 minutes, but this little trick changes the entire nature of the funds.

While I would tend to agree with you, each state's laws are a bit different and I would be hesitant to guarantee someone that their funds were not relevant to unemployment insurance without verification.

 

[Chyvan]

each state's laws are a bit different

Not when it comes to IRAs. In all states IRAs are never treated as pensions. That's why you do the trustee to trustee transfer or your once-a-year rollover then there are no surprises as to how a state treats a 401K because it's no longer a 401K distribution.

 

[commentator]

This happens about three hundred times a week. Speak to the employment office people and they will VERY LIKELY tell you that early withdrawal of your 401 K benefits will not affect your unemployment insurance. But it is to be discussed with THEM, not with internet sites where people who don't know make wild guesses. Yes, report it, talk to them, and they will tell you. Write down who you talked with when you talked to them and what you were told. All states are or may be slightly different but that doesn't mean they're going to be off the charts different. IRA cash outs are not definitely earned wages. Unemployment insurance is NOT income based. They are not usually in any way considered pensions. Report it and discuss it with them.