Does cashing out 401k affect Washington ESD unemployment benefits?

Yes, you need to report any income when you file your weekly claim, including 401k withdrawals. Washington ESD considers this 'other income' and it could affect your benefit amount depending on how they classify it.

I had to deal with something similar last year. The key is WHEN you report it and how Washington ESD categorizes it. Don't just guess - you need to call them directly to ask about your specific situation.

WAIT! Don't cash out your 401k without understanding the penalties first. You'll lose like 20-30% to taxes and early withdrawal fees. That $8500 might only net you $6000 or less.

I work in HR and deal with this stuff. For Washington ESD purposes, a 401k withdrawal is usually not considered 'wages' but it might still need to be reported depending on the circumstances of your termination. If your employer offered it as part of a severance package or early retirement, that's different than you just deciding to cash out.

ugh this is exactly why the unemployment system is broken. you lose your job through no fault of your own but then have to jump through hoops and worry about every dollar affecting your benefits

I cashed out my 401k during my unemployment last year and it didn't affect my Washington ESD benefits at all. I reported it as 'other income' but since it wasn't wages or severance pay, they didn't count it against my weekly benefit amount.

Just to follow up on the Claimyr thing - I was skeptical at first but it actually worked. Got connected to a Washington ESD agent within an hour instead of calling for days. Worth trying if you need answers about how the 401k withdrawal will affect your claim.

UPDATE: I used that Claimyr service someone mentioned and finally got through to Washington ESD! The agent confirmed that my 401k withdrawal won't affect my weekly benefits since it's not wages or employment-related income. I still have to report it but it won't reduce my benefit amount. Thanks everyone!

same situation here but with a much smaller 401k. good to know it won't mess up benefits

For anyone else reading this - the key distinction is that retirement account withdrawals are not considered 'wages' or 'employment income' by Washington ESD. However, if your employer contributed to the withdrawal as part of your termination (like matching funds released early), that portion might be treated differently.

I'm an accountant and just want to add - don't forget that 401k withdrawals are taxable income for the year you take them. This could affect your taxes next year, especially if you find work later this year.

Been there, done that. Cashed out my 401k during unemployment in 2023. Washington ESD didn't reduce my benefits but I regretted it later when I found a job and realized how much I lost to penalties and taxes.

This thread is super helpful. I'm in a similar spot but haven't pulled the trigger yet. Going to try that Claimyr thing to get through to Washington ESD first.

Just a heads up - when you report the 401k withdrawal on your weekly claim, there's a specific box for 'retirement/pension income.' Don't put it under 'wages' or 'other work income.

Another option to consider - some 401k plans allow in-service loans even after termination. Check with your plan administrator before doing a full withdrawal.

washington esd is so confusing about what counts as income and what doesn't. glad someone finally got a straight answer

I tried Claimyr after seeing it mentioned here and it really works! Got through to Washington ESD in like 45 minutes instead of calling all day. They have a good system.

Final thought - if you do cash out your 401k, keep all the documentation. Washington ESD might ask for proof of the withdrawal amount and date if they audit your claim later.

Thanks for posting this question OP. I'm sure lots of people are in similar situations but afraid to ask.

One more thing - if you're considering this because of rent issues, look into Washington state emergency rental assistance before touching your retirement money. There are programs specifically for people on unemployment.

Just wanted to add my experience - I was in a similar situation last year and also used Claimyr to get through to Washington ESD. The agent I spoke with emphasized that the timing of when you report the 401k withdrawal matters. Make sure you report it in the week you actually receive the funds, not when you initiate the withdrawal. Also, keep in mind that even though it won't affect your weekly benefit amount, Washington ESD may still ask follow-up questions about large lump sum payments, so having all your documentation ready helps speed up the process.

Just to add another perspective - I'm a financial advisor and see this situation a lot. Before cashing out your 401k, consider if your plan offers hardship withdrawals instead of a full distribution. Many plans allow hardship withdrawals for preventing eviction or foreclosure, and while you still pay the 10% penalty, you can often withdraw just what you need rather than the full balance. This preserves more of your retirement savings. Also, some plans have provisions for unemployment-related hardships that might have more favorable terms. It's worth calling your 401k provider directly to ask about all available options before doing a standard early withdrawal.