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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
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Experience:  Significant experience in all areas of employment law.
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I live in California and I am currently collecting Unemployment

Customer Question

I live in California and I am currently collecting Unemployment from EDD. I cashed out my 401k recently. Do I need to report this cash out as an earning in my EDD claim form or is my 401k an asset that does not need to be reported?
Submitted: 4 years ago.
Category: California Employment Law
Expert:  Patrick, Esq. replied 4 years ago.
Hello and thank you for entrusting me to answer your question.

The straight answer is that 401k withdrawals do NOT need to be disclosed as earned income on your re-certifications for benefits forms. The only income which can operate to disqualify you from collecting benefits or reduce the amount to which you are entitled is income actually EARNED while you are receiving benefits.

A 401k cashout is income that you earned while employed, you are simply aquiring access to it now. Thus, it is entirely irrlevant to the EDD and to one's re-certification for unemployment benefits.

Please do not hesitate to let me know if you have any questions or concerns regarding the above and I will be more than happy to assist you further.

If you do not require any further assistance, please be so kind as to provide a positive rating of my service so that I may receive credit for assisting you. Very best wishes to you and thank you so much for coming to Just Answer.
Customer: replied 4 years ago.

I just received a reply from EDD. EDD wants 401k cash outs reported in the weekly claim forms.

Expert:  Patrick, Esq. replied 4 years ago.
UI Insurance Code 1255.3 is controlling. Essentially, that code section provides that a pension payment, such as a 401k, is deductible from the amount of your UE benefits (meaning you are still eligible to receive benefits but must subtract the pension amount) only if:

- The pension is based on your prior work at the company; and

- It is paid under a plan maintained or contributed to by a base period employer (a base period employer is an employer whom your worked for during the four quarters immediately prior to your termination); and

- Your work after the beginning of the "base period" affected your eligibility to receive the pension or increased the award of the pension; and

- You didn't make any payment into the pension fund.

Basically, the EDD regards pension benefits that fit the above criteria as continued "income," and since you are still receiving "income," your UE benefits must be reduced by the amount of that income. In many cases, the pension benefits exceed what your weekly UE benefits would be, and therefore you are not eligible to receive benefits at all.

My understanding is that a 401k typically involves employee contribution, and thus, any cashout of a 401k would not come within the purview of 1255.3.

All the above noted, if the EDD wants you to report it, then it is better to follow what the EDD is saying, regardless of what the law actually provides. I can only tell you what the law provides and I cannot predict what an employee at the EDD will say, especially when such employees do not possess a legal education and, for that matter, often lack a nuanced understanding of the laws they are attempting to enforce.

Best of luck to you.

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