401k cash out and unemployment benefits

[Juliop25]

What is the name of your state?
California

I wanted to know if I had to report my 401k cash out to unemployment if I’m receiving benefits?

 

[Zigner]

https://www.edd.ca.gov/UIBDG/Total_and_Partial_Unemployment_TPU_46055.htm

This web site explains the matter.

 

[FlyingRon]

What is the name of your state?
California

I wanted to know if I had to report my 401k cash out to unemployment if I’m receiving benefits?

It depends on the nature of the plan. If you put your own money in, then California doesn't consider this income. If you didn't put your own money in, then this is considered "retirement payemnts" and reduces your benefits.

 

[Juliop25]

What if it was all taken out?

 

[Juliop25]

https://www.edd.ca.gov/UIBDG/Total_and_Partial_Unemployment_TPU_46055.htm

This web site explains the matter.

I read this but I can’t make any sense of it. Anyway you can simplify it?

 

[Zigner]

I read this but I can’t make any sense of it. Anyway you can simplify it?

I can simplify it by answering your question with this: It depends.

You can contact the EDD for further clarification. Be patient.

 

[commentator]

I would just about bet cashing out a 401K because you need the money doesn't affect your claim, but this is the problem. Have you already taken it out? If so and you make your weekly certification for benefits and you report it as pension, it will stop your claim until your circumstances can be explored. So, first move, call someone, and discuss it with them. Do not report it unless you are told to do so.

I'd strongly advise that right now, while the extra $600 a week is in effect, you do not take it out, not raising any issue and not causing any stoppage of your claim. Keep your claim going right now if you can. Wait and see if the extra $600 in benefits happen to be extended, which I suspect will not be happening. That way if your claim were to be stopped for any period, you wouldn't have missed a week when you're receiving the $600 as well as your regular pay. They will not hold that money back for you if your claim is in appeal status at that time.

A call to the CA EDD will probably get you this sort of answer. Okay, if you contributed to the 401K, you don't need to report it. You are getting it out under special circumstances, not because you are actually retiring. That shouldn't affect your claim.

 

[Juliop25]

Ok thanks that helps a lot. I was reading that if you take the lump sum out you should be fine and don’t have to report it to edd?

 

[Zigner]

I would just about bet cashing out a 401K because you need the money doesn't affect your claim, but this is the problem. Have you already taken it out? If so and you make your weekly certification for benefits and you report it as pension, it will stop your claim until your circumstances can be explored. So, first move, call someone, and discuss it with them. Do not report it unless you are told to do so.

I'd strongly advise that right now, while the extra $600 a week is in effect, you do not take it out, not raising any issue and not causing any stoppage of your claim. Keep your claim going right now if you can. Wait and see if the extra $600 in benefits happen to be extended, which I suspect will not be happening. That way if your claim were to be stopped for any period, you wouldn't have missed a week when you're receiving the $600 as well as your regular pay. They will not hold that money back for you if your claim is in appeal status at that time.

A call to the CA EDD will probably get you this sort of answer. Okay, if you contributed to the 401K, you don't need to report it. You are getting it out under special circumstances, not because you are actually retiring. That shouldn't affect your claim.

Whether it's funded by employee contributions, employer contributions, or some combination thereof makes a difference.

 

[Juliop25]

Whether it's funded by employee contributions, employer contributions, or some combination thereof makes a difference.

Employer contributions and I pulled out the whole thing and I was taxed

 

[Zigner]

Employer contributions and I pulled out the whole thing and I was taxed

Based on the site I linked to above, those funds may affect what you are eligible to receive. Contact the EDD.

 

[FlyingRon]

Whether it was taxed or not matters not to unemployment in California. What matters is if the employer was the one making contributions. That makes it the virtual equivalent of a pension, which reduces unemployement dollar for dollar. If it was money you contributed, then it's not counted against you (whether it needs to be reported, I don't know).

 

[Chyvan]

Here's the deal. In CA, the odds of your 401K withdrawal affecting your UI benefits is very close to zero. However, Commentator makes the best point that reporting it this way will trigger an investigation and suspend benefits which will stress you out.

However, this method works in every state so that it NEVER affects your UI benefits, and requires no reporting to any UI agency. You take the 401K, and you trustee-to-trustee transfer it to an IRA, and then withdraw from the IRA. Credit Unions typically have the right kind of IRA accounts to make this convenient, easy, and relatively fast. The big banks, not so much. However, Commentator telling you to leave it alone is probably the first choice.

Since it sounds like you put the money in your pocket and can't now opt for the trustee-to-trustee transfer, you can take the amount from your own funds and deposit it into an IRA as a rollover provided your in the 60-day window to do this, and turn around and pull it out the next day an accomplish the same goal, but you'd still need to make up for the 20% that was withheld because you didn't ask about what to do BEFORE you went and did this on your own.

The other reason to do it my way is because a lot of times people don't need all their 401K plan money. These credit union accounts I mentioned allow for on the fly withdrawals. If you end up getting another job, you can take the remaining funds still in the IRA and maybe move it into your new employer's plan, or invest it in something with a better rate of return that's less liquidity. The point is that it's a way to try to preserve all the hard work you did saving for retirement instead of starting from zero. While not relevant for a claimant that gets let go at the beginning of the year, it can result in a huge tax savings for someone let go at the end of the year. In that case, you've worked mostly the whole year, and people take these huge 401K withdrawals and pay the highest marginal tax rates. By putting it in an IRA, they can mayme wait until after Jan 1 to do the IRA withdrawal and if they're out of work for a long time with nothing but UI, they can drastically reduce the tax hit by shifting the "income" into a lower income year.