If I cash in my 401k do I have to log that as earned income on my weekly unemployment filing in Arizona. I had no choice since $160 per week does not pay my bills. I used it to pay off my car and a credit card to alleviate the financial load.

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    Have you already cashed it out? I would probably have sold the car before paying 50% tax/penalty on a 401(k) cashout. I would STRONGLY consider trying to make a contribution to avoid the penalties if there's any feasible way to do so.
    – D Stanley
    Aug 7, 2017 at 22:11
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    Yes, some states reduce unemployment payments when there is 401k income, a quick search suggests that AZ is one of these states.
    – Hart CO
    Aug 7, 2017 at 22:16
  • @DStanley: for someone unemployed and struggling to make a car payment I doubt the marginal rate is above 25%+state plus the 10% penalty. You can't recontribute to a 401k when you're not earning pay, although you could open or add to an IRA within 60 days and treat it as a rollover. Aug 9, 2017 at 13:58
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    I agree with DStanley. Far better to sell the car and use that to make CC payments. Because your emergency fund was not fully funded, you should not have had a car note, much less credit card load. Now is the time to take whatever job you can (fast food, delivery, Walmart, etc.), as a bridge job, while you look for a new, full-time, career track job.
    – Xalorous
    Nov 21, 2017 at 15:38
  • @DStanley Early disbursements are penalized by 10%, and add to your taxable income (another 10-25% of the disbursement).
    – Xalorous
    Nov 21, 2017 at 15:38

2 Answers 2


It depends on your state's unemployment rules. But it appears that AZ will reduce your employment benefits if you take out money from your 401(k). The advice in the link is to wait until you have exhausted all of your benefits before drawing on your 401(k).


However, given the financial hardship you are under, it may make financial sense to clear out sources of high interest debt such as a credit card or car as these could outweigh any benefit you may gain by paying the minimum credit card payment, and pushing back on auto loan payments. It would also give you some peace of mind.

As the benefits vary based on the amount of your 401(k) withdraw, it is important that you keep the withdraw to the minimum.


Under the CARES act there is no penalty and you have three years to pay the federal taxes or to put the money back without penalty. Just make sure you withdraw with a direct cause relating to the Coronavirus.

Just realized this was an old post not related to the Coronavirus 🤷🏾‍

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    Plus it was about the effect on unemployment insurance (aka unemployment benefit), not on taxes. And as stated in past comments and answer, unemployment (in US) is run separately and differently by each state, not federally. Aug 19, 2020 at 9:50

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