By Q. I was looking to take a COVID 401(k) withdrawal. Do I have to claim this with my unemployment benefits? — Planning ahead A. We’re sorry to hear you’re out of work. You will not need to claim a 401(k) withdrawal on your unemployment benefits. Distributions from a qualified retirement plan such as a 401(k) or IRA would not affect your ability to claim benefits, said Kenneth Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton. He said as you consider taking a 401(k) withdrawal to supplement your income, it’s important to understand the requirements to qualify for a coronavirus-related withdrawal. “The CARES Act allows individuals to withdraw up to $100,000 from a 401(k) without penalty if they meet certain requirements,” he said. Before the passing of the CARES Act, early withdrawals from a 401(k) account incurred a 10% penalty. The CARES Act has temporarily suspended the 10% penalty for those impacted by COVID-19. “To qualify, you, your spouse or dependent must be diagnosed with COVID-19 or have experienced financial hardship as a result of being quarantined, laid off or furloughed, having work hours reduced, or being unable to work due to a lack of childcare,” he said. “From a tax perspective, the CARES Act has allowed coronavirus-related withdrawals to be taxed over a three-year period, instead of incurring the entire tax burden in the year that the distribution is taken.” Email your questions to . Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter. If you purchase a product or register for an account through one of the links on our site, we may receive compensation. I was laid off in July due to Covid and since I'm feeling the financial pinch I'm considering taking a CARES act distribution from my 401k plan. Do I need to report this on the questions the EDD asks when you certify for weeks? What happens if I say that I take a $5,000 dollar distribution? Will they cancel my benefits? "Under California law, 401(K) benefits count as income and may reduce the recipient’s weekly benefit amount. However, a cash out will not affect the weekly benefit amount where the recipient contributed to their 401(K) plan. California Unemployment Insurance Code § 1255.3. Otherwise, the recipient may expect a dollar-for-dollar reduction of their weekly benefit amount." This plan is something I contributed to every paycheck while employed at the company. I just dont know what to expect or how to proceed. I cant get through to EDD to find out, and I'd like to not lose my benefits since that would be a near nail in the coffin. Pension or Retirement PayA. Pension Law - Section 1255.3Section 1255.3 reads as follows: "(a) Except as provided by subdivisions (c) and (d), the amount of unemployment compensation benefits, extended duration benefits, and federal-State extended benefits payable to an individual for any week which begins after March 31, 1980, and which begins in a period with respect to which that individual is receiving a governmental or other pension, retirement or retired pay, annuity, or any other similar periodic payment which is based on the previous work of the individual shall be reduced, but not below zero, by an amount equal to the amount of the pension, retirement, or retired pay, annuity, or other payment, which is reasonably attributable to that week. (c) Subdivision (a) shall apply to any pension retirement or retired pay annuity, or other similar periodic payment only if both of the following are met: (1) The pension, retirement or retired pay, annuity or similar payment is under a plan maintained (or contributed to) by a base period or chargeable employer. (2) In the case of such a payment not made under the federal Social Security Act or the Federal Railroad Retirement Act of 1974 (or the corresponding provisions of prior law) services performed for the employer by the individual after the beginning of the base period (or remuneration for such services) affect eligibility for or increase the amount of such pension, retirement or retired pay, annuity, or similar periodic payment. (d) (1) Subdivision (a) shall not apply to any pension retirement, or retired pay annuity or other similar periodic payment if the individual has made any contribution to the pension retirement or retired pay, annuity or other similar periodic payment. (2) The amendments made to this subdivision during the 1986 portion of the 1985-86 Regular Session shall apply to new claims filed with an effective date beginning on or after January 1, 1987." To summarize, Section 1255.3 provides that a pension payment is deductible if:
The following chart illustrates the steps which must be followed in implementing this law. PENSION DEDUCTION GUIDE B. Section 1255.3 Interpretations/Definitions
C. Examples of Application of Section 1255.3 (c)(2)
D. Example of Application of Section 1255.3 (d)Section 1255.3 (d) was added effective with claims filed after January 1, 1987. It provides that a pension is not deductible if the worker made any contribution to the pension fund. Example: BYB: July 8, 1987 Base Period: Calendar Year 1986 Factual Data: Claimant was mandatorily retired in June, 1987. He worked for the employer for 35 years. He is receiving a pension of $900 per month based on his employment. During the first ten years he was employed the claimant did contribute to the pension fund. He did not contribute after that because the union and employer negotiated a new pension plan agreement which provided that the pension would be paid entirely by the employer. Thus, during the last 25 years he was employed, the claimant made no contribution to the pension fund. Conclusion: The pension is not deductible because the claimant did at one time, make contributions to the pension fund, even though the last contribution was 25 Years before. E. Lump Sum PaymentsWhere an individual receives his/her entire pension in a lump sum, or if an employee is separated prior to retirement and is paid a lump sum from the pension fund covering his/her full entitlement, the lump sum pension payments are not deductible under Section 1255.3. Under Section 1255.3 (a), a pension payment is deductible only if it consists of a "periodic" payment. Inasmuch as a lump sum the entire pension due cannot "periodic" payment, it is not deductible. F. Allocation of Retroactive Pension PaymentsAnother area to be examined in determining a claimant's eligibility for benefits under Sections 1252 and 1279 is whether he/she has "wages" payable with respect to a week of benefits claimed.
G. Examples of Potentially Deductible PensionsIn the event the claimant made no contributions to the pension fund the following types of pensions are potentially deductible:
H. Examples of Pensions Which Are Not DeductibleAnother area to be examined in determining a claimant's eligibility for benefits under Sections 1252 and 1279 is whether he/she has "wages" payable with respect to a week of benefits claimed.
I. Information on Major Pension Plans
J. General Rules for Calculation of Deductible Amount
Do I have to report 401k withdrawal to unemployment CA?Under California law, 401(k) distributions and pension payments must be reported when claiming unemployment benefits. These payments are counted as income and may reduce an individual's weekly benefits.
What happens if you cash out 401k while on unemployment?Unemployed individuals can make withdrawals from their 401(k) plans without facing penalties. The payments are called substantially equal periodic payments (SEPP). Payments must be distributed over a minimum of five years or until the individual reaches age 59½, whichever is greater.
Can I borrow money from my 401k if I am unemployed?Age of 55. If you are at least age 55 when you become unemployed, you can make penalty-free withdrawals from your 401(k) account. As long as you are not working for the employer, you can start taking distributions from your 401(k) when you turn 55 or after, regardless of the reason why you quit.
Can you collect unemployment and retirement at the same time in California?Therefore, since the pension payments equal or exceed your weekly unemployment insurance benefit amount, you are not eligible for unemployment benefits.
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