I was fired from work and am going through the process of filing for unemployment. My wife and I are now going through our finances and considering bankruptcy. I was considering pulling out my 401k to pay off all our bills instead of bankruptcy.
Would that delay me getting unemployment like a severance would? We would be able to live off her income alone (meagerly) in case I don't find something soon, but I'm leery of using up my retirement money since I am a little older.
Your tapping into your 401(k) is similar to spending your savings. UE is not based on your net worth. Rather, it is insurance against unemployment. Though you may incur tax obligations associated with pulling from your 401(k), it should not affect UE.
I see your are considering Bankruptcy. I would tell you that before you pull anything out of your 401(k) or spend any of your other assets to pay down debts, you should consult with a bankruptcy attorney. Certain assets (including 401(k)s) can be exempt from the claims of credits. You should explore your state's exemption laws before you access assets that may be exempt from creditor claims and pay them over to creditors that would not otherwise be entitled to attach or otherwise access them to satisfy the debt you owe.
I see no reason that a 401(k) withdrawal would affect your eligibility for unemployment. To be eligible in most states you must have been laid off (not quit) and be ready willing and able to take another job if offered. If you are collecting UE, you must report any earnings from work, but withdrawals from a 401 (k) or other retirement plan are not “earnings” for this purpose that you would have to report.
You are wise to try to conserve your retirement funds. You should apply for UE immediately, that’s what it’s there for. Some folks are reluctant to apply for UE, feeling that it’s like welfare, but it’s not. It’s an insurance policy that your employer has been paying for, and now you are entitled to collect it.
DISCLAIMERâ€”This answer is for informational purposes only under the AVVO system, its terms and conditions. It is not intended as specific legal advice regarding your question. The answer could be different if all the facts were known. This answer does not establish an attorney client relationship. I am admitted only in California. (Bryant) Keith Martin sbbizlaw.com
Money in a qualified retirement plan is not severance. It is savings. Distributions from a qualified plan should not delay your qualification for unemployment.
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