Do I need to claim it as earned income and chance not getting unemployment benefits for that week. The choices says retirement 401k but not 401A or 403B. Plus its not earned income. I withdrew early because unemployment is not enough. So my real question is will I get penalized or audited at end of year when i do my taxes. Because I did not claim this as earned income. Not sure if this makes sense.
There is a concept of a hardship withdrawal from a 401(k). However, even if you have verified hardships (and you need to check the IRS's rules about what counts as a hardship AND you need to check if your specific 401(k) plan even has provisions to allow for hardship withdrawals), if you are not at least 59 1/2 years old, there is still a penalty for withdrawing before that age. And as that money was put into the account tax-deferred -- that is you didn't pay any tax when you deposited that money -- it will be taxed when you take it out on top of any penalties. You owe income tax on those withdrawals no matter what your age.
This link may help you: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-hardship-distributions