Does a withdrawal from your IRA make you ineligible for Unemployment Insurance?
Peony & Son in front of the house she can no longer afford now that she's on unemployment. To help make ends meet she dipped into her IRA. Apparently that's a baaad idea in the eye of the unemployment office.
I received an email from one of our readers last week – A single mom from Ohio that had been hosed out of her and has been jerked around by the Unemployment office ever since. She wrote us for more than the opportunity to share her story, she’s looking for answers. So i’m putting this out there to our audience in hopes that someone has some insider information that might be able to help her sort out her predicament. Here’s her story:
8 months ago I was terminated, unjustly, from a job I had for 11 years. I applied for unemployment immediately. It took three months, and three appeals for unemployment to determine that the termination was unjust and for me to receive my first check. In the mean time, I lived off the “hush” money I got from the company I worked for.
Unemployment benefits equaled about 2/3 or the bring home wages I had. Surely not enough to continue paying my mortgage and purchasing groceries. Near the end of the 26 weeks, after Bush had signed for the 13 week extension, I found myself drawing money from my IRA to supplement my unemployment. Since I am an honest person, I reported it on my weekly filing in the space where it asks, was there a change in the amount of, or request for retirement savings. 3 weeks later, I received a denial for any further benefits and was requested to pay the last 3 weeks back.
I have since appealed and received another denial. My question is, if I am penalized for withdrawing money from an IRA to supplement unemployment benefits, then shouldn’t everyone who has money in savings, IRA, etc…be required to pull that out and live on it before applying for benefits?
Anyone thoughts or insights for Peony, please drop them off in the comments section for this post. Thanks.
So far I’ve found that IRA distributions while on unemployment is OK if that money was used for health insurance, found here:
http://www.money-zine.com/Financial-Planning/Retirement/IRA-Withdrawals/
Devin — I know (and see in the link you’ve provided) that early distributions from an IRA are not subject to the 10% federal penalty tax if those funds are used to pay for medical insurance premiums while unemployed, but I do NOT see any reference to the fact that such withdrawals will not affect unemployment eligibility. Am I blind?
This is a crap system. I mean, my God, $450/week (the max here in CA) is not going to support my family of 5, including a modest (for the area) $2000/month morgtage. I’m fine with that — I don’t expect them to replace my entire income even if I HAVE paid into the system for 20 years without ever using it. But if I have to withdraw funds from my IRA in order to cover the shortfall, which is substantial, there is absolutely no reason that should affect the amount I get from unemployment. Absolute crap.
I have read the unemployment handbook from cover to cover and it says
nothing about withdrawals from an IRA. . .this should be addressed in writing if it is to be an issue with them. It states if you are getting “money from a retirement benefit” or other wages, IRA are not
wages nor are they retirement benefits.
Hey thanks. I believe you people who have left your generous comments on this page, more than anyone else’s comments, advice or articles.
I have already had issues with the sensitivity of unemployment denial. It was a different matter but of equal magnitude, and I had not done wrong, I was accused. The appeal, my story, list of witnesses, ect. went in my favor. I walk on eggshells now, because I had to pay back one that didn’t work, many years back. They sent out a warrant of siezure of property before I paid. Everything has been going peachy with me walking eggshells.
Your comments here are the only kind I trust. Not school councelors who tell me even though they are pushing me to sign up for full-time school, and I will get threatening letters about cutting my benefits off, “don’t worry, it’s empty threats. ho-ho, just part of a procedure.” I’m supposed to take it to heart that “Joe Schmoe” councelor is advising me in my best interest. Yeah, and then they screw up the financial aid paperwork and none of my classes are covered. After calling ME to tell me I was accepted.
Trust me folks, comments on boards like these are the only way to find truth. I feel most people disagree and want to believe the man with the suit and the piece of paper with the golden seal.
Thanks,
Made my decision.
I was laid off from my job 4 days after receiving a notice of levy by the IRS for deliquent taxes from 6 years ago.The only assett of value that I have post divorce is a retirement account.I was faced with the choice of either cashing in the account with the associated heavy penalties for early withdrawal(to pay the deliquent taxes and release the levy placed on the family farm)or try to negotiate with the IRS with the meager funds supplied by unemployment benefits.Given that I could barely make ends meet while working with few expenses and court ordered child support,my back was against the wall.I could not negotiate and the IRS recognized this.I opted for the early withdrawal,payed off the IRS,got the levy released so that the family farm trust is not put in jeopardy again,and then rolled the rest back into a Roth IRA for the future.I have gained nothing and I am still unemployed and struggling.Am I required to report this when I request my next payment?The amount of money,even though it hasn’t improved my financial situation,is substantial and would most definitely cancel my unemployment claim even though I need the money no matter how little it is week to week.Help!