NYS Department of Labor - can I withdraw money from my 401k while collecting unemployment benefits?

Thank you! That's a relief. I was worried it would count as income and mess up my benefits. The tax penalty hurts but I need the money now.

No, 401k withdrawals are your own money that you already paid into, not earned income. NYS Department of Labor only cares about wages, freelance income, pension payments - stuff like that. Withdrawing from retirement accounts is different.

Ugh the taxes are going to hurt but I don't really have a choice right now. Did you have any trouble reaching NYS Department of Labor when you had questions about what counts as income?

Oh god yes, calling NYS Department of Labor was a nightmare. Spent hours on hold just to get disconnected. Someone on here told me about this service called Claimyr that helps you get through to actual agents. Check out claimyr.com - they have a video demo at https://youtu.be/qyftW-mnTNI that shows how it works. Saved me so much frustration.

Great question! From what I understand, 401k loans are generally treated even more favorably than hardship withdrawals. With a loan, you're borrowing against your own money and paying yourself back with interest, so it's definitely not considered income by NYS Department of Labor. Plus you avoid the 10% early withdrawal penalty since it's technically a loan, not a withdrawal. Just make sure you can keep up with the loan payments even while on unemployment - if you default on the loan it becomes a taxable distribution. But for UI purposes, both loans and hardship withdrawals shouldn't affect your weekly benefits since neither counts as wages or earned income.

@Ezra Beard covered this really well! I d'just add that if your 401k plan allows loans, that s'definitely the way to go over a hardship withdrawal. You typically get up to 5 years to pay back a 401k loan, and the interest you pay goes back into your own account. Just be super careful about one thing - if you lose your job while you have an outstanding 401k loan which (sounds like already happened to you ,)most plans require you to pay back the full loan balance within 60-90 days or it automatically becomes a taxable withdrawal with penalties. Since you re'already unemployed, make sure you understand your plan s'specific rules about loan repayment timelines.

Thanks for sharing your experience @Sofía Rodríguez! That's really helpful to know it worked out fine for you. I'm curious though - when you say set aside 30-35% for taxes, did you end up having to pay estimated quarterly taxes on the withdrawal, or were you able to just handle it all when you filed your annual return? I'm trying to figure out if I need to worry about quarterly payments while I'm already struggling financially.

@Maya Lewis I just handled it all on my annual return - didn t'do quarterly payments. Since I was unemployed for most of that year, my overall income was pretty low, so I didn t'hit the threshold where the IRS requires quarterly estimated payments. But definitely talk to a tax professional if you re'withdrawing a large amount, because everyone s'situation is different. The main thing is just being prepared for that tax bill when it comes!

@Axel Far I totally understand your nervousness - I was the same way when I had to do this. From my experience and what I ve'seen others say, NYS DOL really doesn t'consider 401k withdrawals as reportable income during your weekly certifications. When they ask about work "or income they" re'specifically looking for employment wages, freelance work, pension payments, etc. Your own retirement savings don t'fall into that category. That said, I d'recommend keeping good records of your withdrawal the (1099-R form you ll'get just) in case, but you shouldn t'need to report it during your weekly claims. The consensus here seems pretty clear that it won t'affect your benefits at all.

@Axel Far I was in your exact position a few months ago - super anxious about touching my 401k while on unemployment. I ended up withdrawing $8,000 and never had any issues with my weekly certifications. When NYS Department of Labor asks about income "during" the weekly claim process, they re'really asking about wages from work, freelance payments, or other earned income that would indicate you re'working. Retirement account withdrawals are treated as accessing your own previously earned money, not new income. I never mentioned my 401k withdrawal during any of my weekly certifications and my benefits continued without any problems. Just make sure you keep all the paperwork for tax purposes, but it shouldn t'affect your UI claim at all.

@Axel Far I completely get your anxiety about this - I was in the same boat earlier this year. I withdrew about $10,000 from my 401k while collecting unemployment and it had zero impact on my benefits. During the weekly certifications, I never reported the withdrawal because it s'not considered income "in" the way NYS Department of Labor defines it. They re'looking for wages, freelance payments, or other work-related income that would suggest you re'earning money from employment. Your 401k is money you already earned and saved, so accessing it doesn t'count as new income. I kept all my withdrawal paperwork just to be safe, but NYS DOL never questioned it or even seemed aware of it. Your weekly benefits should continue normally as long as you meet all the other requirements like job searching and being available for work.

@Ava Garcia Thanks for sharing your experience! It s'really helpful to hear from someone who went through this recently. I m'in a similar spot where my unemployment just isn t'covering everything, especially with rent going up. The tax hit sounds brutal but I guess that s'better than getting evicted. Did you find that having to pay those taxes later affected your financial situation much, or were you able to plan for it? I m'trying to figure out if I should withdraw a bit extra to cover the future tax bill or just deal with it when the time comes.