Will emptying my 401k after layoff affect my ESD unemployment benefits?
I just got laid off from my manufacturing job last week (after 5 years there - didn't see it coming) and I'm trying to figure out my finances. I've got about $42,000 in my 401k that I'm thinking about cashing out to cover bills while I job hunt. But I'm confused about how this might affect my unemployment claim. If I withdraw from my 401k, will ESD count that as income when calculating my weekly benefit amount? Or will it disqualify me completely? I know there's tax penalties for early withdrawal, but I'm more worried about screwing up my unemployment benefits. Has anyone dealt with this before?
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Leslie Parker
401k withdrawals don't count as earned income for unemployment purposes, so they won't affect your eligibility or weekly benefit amount. ESD calculates your benefits based on wages earned during your base year, not from retirement account withdrawals. However, I'd strongly recommend exploring other options before emptying your 401k. You'll face a 10% early withdrawal penalty plus regular income taxes, which could easily eat up 30-40% of your money. Also, you're losing all that potential retirement growth.
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Freya Ross
•Thank you so much for explaining this! That's a huge relief. I was worried they might count it as income and reduce my benefits. You're right about the penalties though... I didn't think about losing that much to taxes. Maybe I'll just take out what I absolutely need rather than the whole thing.
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Sergio Neal
i did this last yr when i got laid off from costco. the 401k didnt effect my unemplyment at all but MAN the taxes hurt!! i took out 18k and only got like 12k after all the penalties and stuff. wish id known b4 i did it
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Freya Ross
•Ouch, that's a big hit. Did you have to report the withdrawal to ESD at all when you were filing your weekly claims? Or did they just never ask about it?
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Sergio Neal
•they never asked about it. the weekly claim just asks about work and earned income. 401k stuff isnt on there at all
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Savanna Franklin
BE CAREFUL!!!! I don't think the previous posters are 100% right. While it's true that 401k withdrawals aren't considered EARNED income, when you file your weekly claim ESD asks if you've received any "other income" including PENSION payments! Depending on how your 401k withdrawal is structured, it MIGHT count as pension income! I had a friend who got his benefits reduced because he was receiving pension payments after being laid off. Different situation but STILL be careful!!! CALL ESD and ask before you do anything!!!! But good luck actually getting through to them... their phone system is IMPOSSIBLE!!!
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Juan Moreno
•There's an important distinction here. You're right that pension payments can affect unemployment benefits, but a one-time 401k withdrawal is treated differently than recurring pension payments. A lump-sum 401k withdrawal is not considered pension income for unemployment purposes in Washington state. It's only recurring pension or retirement payments that can potentially reduce your weekly benefit amount. But you're absolutely right that calling ESD to confirm would be best - each situation can have unique factors.
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Amy Fleming
If you're having trouble reaching ESD to ask about this, you might want to try Claimyr. I was in a similar situation with questions about my benefits and couldn't get through for days. Claimyr got me connected to an ESD agent in about 25 minutes when I'd been trying for a week on my own. They have a video showing how it works: https://youtu.be/7DieNd3C7zQ?si=26TzE_zGms-DODN3 Their website is claimyr.com if you want to check it out. Definitely worth it when you need answers quickly about something important like this.
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Freya Ross
•I hadn't heard of this before, thanks for the tip! I've been trying to get through for 3 days with no luck. I'll check out their video. Did you find the ESD agent was able to give you a clear answer on your question?
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Amy Fleming
•Yes, the agent was super helpful and gave me definitive answers. That's why I recommend it - otherwise I would have been guessing about my situation. When it comes to something that affects your financial situation, it's worth getting the official word directly from ESD.
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Alice Pierce
My brother emptied his 401k after getting laid off and it didn't affect his unemployment at all but then he couldn't find a job for 8 months and now he's really regretting taking all that money out because of how much he lost to penalties. Have you looked into taking a loan from your 401k instead of a withdrawal? I think you can do that without the same penalties.
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Esteban Tate
i'm on unemployment right now too and let me tell u, they only care about WORK income on your weekly claims. They ask if you worked or earned any money from work. 401k isn't work so it doesn't count! But like everybody says the tax hit is brutal so be careful!!!!
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Freya Ross
•Thanks for the input! This is making me feel better about not losing my benefits. I'm definitely reconsidering how much I'll withdraw after hearing about all the tax penalties though.
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Leslie Parker
One more thing to consider - if you're using your 401k to pay bills while job hunting, it might be worth spreading the withdrawals across tax years if we're near year-end. Taking half in December 2025 and half in January 2026 could potentially reduce the tax impact versus taking it all at once. Also, check if your 401k plan allows for hardship withdrawals due to unemployment. Some plans waive the 10% early withdrawal penalty (though you'll still owe income tax).
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Freya Ross
•That's a smart strategy about spreading it across tax years. We're only in May now, but I'll keep that in mind if my job search takes longer than expected. I'll definitely call my 401k administrator about hardship withdrawals - that could save me a lot in penalties. Thanks for the advice!
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Juan Moreno
To summarize what others have said and add some clarity: 1. One-time 401k withdrawals are NOT considered income for unemployment eligibility or benefit calculations 2. 401k withdrawals are different from pension payments (which can affect benefits) 3. During weekly claims, you must report work and earned income, but not 401k withdrawals 4. The financial penalties are significant: 10% early withdrawal penalty + federal income tax (possibly 22-24% depending on your total annual income) Before withdrawing, consider alternatives like unemployment benefits + partial 401k withdrawal, or investigate if your 401k plan offers hardship withdrawals with penalty waivers. Some plans also offer loans against your 401k that may be less costly than full withdrawal.
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Freya Ross
•Thank you for this clear summary. After reading everyone's responses, I think I'm going to hold off on touching the 401k for now and see how far I can stretch my emergency savings + unemployment benefits. If I do need to tap the 401k, I'll do partial withdrawals rather than emptying it completely. Really appreciate everyone's help!
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Sophia Carter
Just wanted to add another perspective as someone who's been through a similar situation. I was laid off from Boeing about 2 years ago and faced the same dilemma. What I ended up doing was taking a small loan against my 401k first (about $8,000) which had much lower costs than a withdrawal - just interest paid back to myself. When that wasn't enough after a few months, I did a partial hardship withdrawal. My plan administrator approved it due to unemployment and waived the 10% penalty, so I only paid regular income tax. Not all plans offer this, but it's definitely worth checking. The unemployment benefits alone weren't enough to cover my mortgage and other fixed expenses, but combining them with strategic 401k access helped me avoid financial disaster while job hunting. Just make sure you understand all your options before making any moves!
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Josef Tearle
•This is really helpful to hear from someone who actually went through this with Boeing! I didn't even know about 401k loans being an option - that sounds way better than losing 30-40% to penalties and taxes. The hardship withdrawal with waived penalties is definitely something I need to look into. It sounds like you found a good balance between unemployment benefits and strategic 401k access. How long did it take you to find another job, if you don't mind me asking? I'm hoping my job search won't drag on too long, but it's good to know there are multiple options if it does.
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Isabella Tucker
•It took me about 7 months to find a new position, which was longer than I expected but pretty typical for aerospace jobs in my area. The combination approach really saved me - I was able to keep my house and avoid completely draining my retirement savings. One thing I'd add is to document everything when you apply for hardship withdrawal. I had to provide my layoff notice, unemployment benefit statements, and a detailed list of expenses. The process took about 2 weeks to get approved, so don't wait until you're completely out of money to start it. Also, if you do end up taking a 401k loan, just be aware that if you find a new job and leave that employer, the loan typically has to be paid back pretty quickly or it converts to a withdrawal with all the penalties. Good luck with your job search!
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