Does cashing out a taking 401k as a lump sum affect unemployment benefits?
I was recently told that the plant were I work will be closing soon. I have a 401k, with a loan on some of it. I need the money to live on. If I cash this out will it affect my unemployment benefits? Is there a way it wouldn't? Could the 401k be paid on the last day I work for the company and not affect it? Yes my employer contributed some. And I am under the age of 59 1/2.
No, cashing out a 401(k) should not affect unemployment benefits, any more than cashing out bonds, redeeming investments in a mutual fund, selling stocks, selling property or a house, or withdrawing money from a bank account would.
The money in a 401 is your money--ignoring the different tax treatment, rules about when you can withdraw without penalty, etc., it is essentially like any other bank, money market, or brokerage account you have. Unemployment eligibility is affected by your earnings from employment--not by you withdrawing your own money you have previously earned.
However, before doing anything, do consider the penalty and tax implications--they can be very significant. You should speak with your accountant, tax preparer, or similar professional before acting.