NJ: Pension, 401K and Unemployment Benefits (receive, apply, claim, payment)

[SweepTheLeg]

I lost my job earlier this year, and have been running a focused job search. My old job has a 401k and a pension plan. The pension was 100% company funded. The 401K was funded by me with a match by the company. The 401K is fully vested and mine to take.

My family has some medical expenses coming up, so I am considering cashing out my pension in a lump sum to pay for those expenses and put the money away for any future needs.

As a round number, lets say my pension cash-out is $2,000.

Now, will I lose $2,000 of unemployment benefits, or just lose the benefits for that week I get the lump sum? In other words, if I get the lump sum in Week 1 of my benefit cycle, I'll get -0- for Week 1, but get my normal amount for Week 2? Or will I get zero benefits period until my benefits match the $2000? I.E. NJ will give me nothing for my claim for a while?

On the flip side, does it make more sense to cash out the equivalent of the pension money out of the 401k, since that's "my" money, and then roll what's left of the 401k and pension into the IRA? You're losing nearly a third anyway when it comes to taxes and penalties, I'm just concerned about losing the unemployment benefit.

Or does what I take out of the 401K count against unemployment too?

Thanks for your help!

[Ariadne22]

Originally Posted by SweepTheLeg

I lost my job earlier this year, and have been running a focused job search. My old job has a 401k and a pension plan. The pension was 100% company funded. The 401K was funded by me with a match by the company. The 401K is fully vested and mine to take.

My family has some medical expenses coming up, so I am considering cashing out my pension in a lump sum to pay for those expenses and put the money away for any future needs.

As a round number, lets say my pension cash-out is $2,000.

Now, will I lose $2,000 of unemployment benefits, or just lose the benefits for that week I get the lump sum? In other words, if I get the lump sum in Week 1 of my benefit cycle, I'll get -0- for Week 1, but get my normal amount for Week 2? Or will I get zero benefits period until my benefits match the $2000? I.E. NJ will give me nothing for my claim for a while?

On the flip side, does it make more sense to cash out the equivalent of the pension money out of the 401k, since that's "my" money, and then roll what's left of the 401k and pension into the IRA? You're losing nearly a third anyway when it comes to taxes and penalties, I'm just concerned about losing the unemployment benefit.

Or does what I take out of the 401K count against unemployment too?

Thanks for your help!

I can't answer your question on NJ law re employer-funded Pension/401K. Some states ignore these funds.

In Wisconsin, we lose benefits, dollar for dollar on any employer-funded retirement withdrawal if it is paid DIRECTLY to us. Not just for the week in which it was paid, but over the period of time it might compensate for unemployment benefits.

However, lump-sum and even installment rollovers into an individual IRA are exempt from this until we actually withdraw at which time we are supposed to report this.

For tax reasons, I would NEVER take a direct lump sum from either a pension or 401K, as the 401K trustee and your employer are required to withhold 20% for federal taxes. Since you are not working, it seems to me a 20% withholding would be onerous and much higher than the actual tax owed. Why pay the government that much money when you don't need to?

Instead, do a lump sum rollover into a individual IRA which you can set up at any bank or brokerage house. You can then withdraw and elect not to have taxes withheld.

To avoid questions from NJ on the employer funded portion of the 401K, you could rollover only your portion into an individual IRA and let the employer portion sit. Withdrawal of those funds should not affect your benefit.

The rollover of the actual pension itself, might be subject to NJ scrutiny when you begin withdrawals after you have rolled it over, however.

Depending on your age, it is possible to set up a structured withdrawal over a period of five years or longer on those rollover IRAs which would allow you to avoid a penalty on early withdrawal. I believe you need to be 55 years old for this.

Consult a tax advisor on your best alternatives. Taxes and penalties, paid unnecessarily, can decimate these retirement savings. Don't throw that money away if you don't have to.

[Tuck91NYG]

in nj, if the pension is 100% funded by the company you must report it. if the the 401k is 100% funded by you, you don't report it. I took money out of my 401k twice voer the alst 2 years with no issues. im in nj

[dperry1964]

I took a total distribution from my 401K and had 30% withheld from it for IRS taxes and penalties. I was receiving unemployment benefits in Colorado and they stopped paying me. As soon as the distribution was directly deposited into my account I rolled it all over into an IRA without touching a cent. I then called unemployment and faxed all the appropriate paperwork. I received a call from unemployment and they informed me that they would return me to payment status. The gentleman then said I couldn't touch the funds for a year or I would be penalized. Can I now withdraw from my IRA without my unemployment being affected?

[Ariadne22]

How did the unemployment office find out about the 401k withdrawal so that they suspended your benefits? You would have been better off to do a direct lump sum rollover thus avoiding any withdrawal for taxes and penalties and possible COL scrutiny and suspension of benefits. Of course, you may have received or will receive a big tax refund which COL should rightly consider withdrawal from the 401k - but it probably won't.

That said, has one year gone by since you did the rollover? At some point COL will catch any distributions through your IRA custodian 1099 filings. Some do these filings right away, some wait until the end of the year. Even if one year has gone by, COL may still at some point question any withdrawal - even a year or more after the fact when it cross-checks 1099s against its claimants. Be sure you are in compliance.

[Unemployed 13]

Originally Posted by Tuck91NYG

in nj, if the pension is 100% funded by the company you must report it. if the the 401k is 100% funded by you, you don't report it. I took money out of my 401k twice voer the alst 2 years with no issues. im in nj

Hi. Hope you can help me. My 401k was funded by me with an employer match. I only requested to cash out what I contributed. Do I have to report it to unemployment? I am really stressed because my ex company gave me a vehicle and I need the 401k money to buy a car to go to interviews and move around. I haven't received the check yet but I did apply for it. @Tuck91NYG could you please tell me more about how you cashed out with no issues? Any info would help =-/

[classic1956cars]

Hi, Re: 401K
I have the same issue with NJ unemployment benefits, can you Please tell me how you made out ?

I have been laid off from my job in New Jersey, as of Sept.1, 2011
I am entitled to and will be seeking unemployment benefits. I have a 401K. The 401K was funded by me with a match by the company. The 401K is fully vested and mine to take. According to NJ Law they claim that they can take 50% of my 401K. And give me 50% less benefits, Now this is where it becomes involved, I have never drawn on it, or touched the 401K , I don't want to be penalized , What should I do ? Roll it over to an IRA ? Reinvest it ? Do nothing ? I have gotten mixed opinions on this. Need some real good advice,
Thanks

[Ariadne22]

Originally Posted by classic1956cars

Hi, Re: 401K
I have the same issue with NJ unemployment benefits, can you Please tell me how you made out ?

I have been laid off from my job in New Jersey, as of Sept.1, 2011
I am entitled to and will be seeking unemployment benefits. I have a 401K. The 401K was funded by me with a match by the company. The 401K is fully vested and mine to take. According to NJ Law they claim that they can take 50% of my 401K. And give me 50% less benefits, Now this is where it becomes involved, I have never drawn on it, or touched the 401K , I don't want to be penalized , What should I do ? Roll it over to an IRA ? Reinvest it ? Do nothing ? I have gotten mixed opinions on this. Need some real good advice,
Thanks

Your 401k has been partially funded by your employer through its match. Therefore, it could be considered an employer retiirement benefit - should you withdraw from it. You would not receive fewer unemployment dollars overall. However, those dollars would be paid over a longer period of time due to your 401k withdrawal offsets.

In WI, a direct rollover to another qualified plan out of the 401k would remove the 401k from unemployment scrutiny. If you take the money directly, NJ may consider it an offset to your benefits, in addition to which you would be subject to a 10% early withdrawal penalty and 20% federal tax withholding. The only way to avoid those two events is to leave the money where it is or roll it over directly to an IRA. DO NOT have a check made payable to yourself.

[classic1956cars]

Hi Ariadne22,
Thanks so much, GREAT ADVICE !! I researched this yesterday and found a NJ state law, that had a similar answer to you....Here is the link : http://www.njleg.state.nj.us/2006/Bi...00/2912_I1.PDF
Again Thanks a Million !!
Bill

[classic1956cars]

Hi,I hope some can answer my question, I received a letter from NJUE stating that I have CLAIMS EXAMINER INTERVIEW by phone in 2 weeks. Reason Why > "You may have been separated for misconduct in connection with your work" I have a Reference letter from my employer stating : that I was an outstanding worker and did all my work above what was expected of me, etc. Should I contact my employer and tell them that I have this interview regarding this misconduct issue or wait for the phone interview.
Thanks