Ask the Expert: Unemployment insurance and retirement income

Q: I am 65 years old and I was laid off. I’m moving my 401(k) into an IRA. Will using some IRA money affect my unemployment insurance benefit?

A: No. Unemployment benefits aren’t affected by individual retirement account withdrawals, although they can be reduced by 401(k) payments.

When you’re collecting unemployment and tapping a retirement account, the rules depend on what type of retirement account it is, on who contributed to the account, and sometimes on when those contributions were made.

Your unemployment benefit may be reduced if you receive periodic payments from a pension to which your former employer contributed, for example; but it wouldn’t be affected if you were the sole contributor to the pension.

Your benefit might also be reduced if you receive payments from a workplace retirement plan like a 401(k), to which your “base period” employer contributed. Your “base period” is the period during which you earned the wages that determine your unemployment benefit. That’s the first four of the last five calendar quarters completed before you claimed unemployment insurance. (For example, if you applied in the third quarter of 2020, your base period would be from April 1, 2019, through March 31, 2020.)

The good news: If you move your pension or employer-sponsored retirement plan into an IRA, you’re no longer subject to an unemployment insurance reduction.

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Q: I know the federal COVID-19 relief payment was intended for calendar year 2020 but paid in advance to many taxpayers based on their 2019 income. My wife and I qualified and received payment in 2019. If we don’t qualify in 2020, do we have to return it?

A: No.

The bottom line

You don’t have to return 2019 coronavirus relief payments even if your 2020 income disqualifies you for the amount you received.

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TO ASK THE EXPERT Send questions to [email protected] Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.oo

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