Q. My husband has been out of work for four months and has not received any unemployment benefit. He had to borrow a few thousand dollars from his 401 (k) plan to pay some bills. Unemployment just started yesterday and they say they have to deduct the money he borrowed from his 401 (k) and take it out of his benefits. How can that be true?
A. There are some problems here.
Under the CARES Act, you can withdraw funds from your 401 (k) up to $ 100,000 or 100% of your acquired account balance, whichever is less, without incurring charges. 10% early withdrawal penalty, said Jody D’Agostini, Certified Financial Planner at Equitable Advisors / The Falcon Financial Group in Morristown.
She said you have the option to pay it back within three years to avoid paying regular income taxes on the amount.
Since your husband is out of work, you have suffered unfavorable financial consequences due to the virus and therefore have the right to take advantage of this option.
But something is wrong with what you are reporting. You speak of a loan and not of a early withdrawal.
“I would go back to the 401 (k) plan administrator to make sure it was considered a loan,” she said.
It is important to clarify how the plan viewed the loan or withdrawal. If your husband had a loan but lost his job permanently, he may have had to repay the loan to his 401 (k) within a certain period of time, otherwise it would be considered a withdrawal, but he should still receive favorable treatment under the CARES Act.
“Is it possible that on the unemployment claim you incorrectly entered the 401 (k) withdrawal as income for the year?” ” she said. “Otherwise, any loan or distribution of your 401 (k) should have no impact on unemployment eligibility.
If this is the case, it recommends that you file an appeal with the Ministry of Labor.
Email your questions to [email protected].
Karin Price Mueller writes on Bamboo 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 electronic newsletter.