Unemployment benefits and IRA withdrawals for laid-off workers aged 63, Digi Mart USA News: A 63-year-old worker who has been laid off and plans to file for unemployment the week after his last day is asking whether taking money out of his IRA to cover bills could lead his state to cut his unemployment check. The concern is common among people in their early 60s, who often have savings to fall back on.
Households aged 55 to 69 hold 41% of all U.S. household net worth, according to Federal Reserve data.
A reader asked NJMoneyHelp a similar question, and the planner who answered pointed to New Jersey’s state guidance: “You will not need to claim a 401(k) withdrawal on your unemployment benefits, nor claim distributions on an IRA account.”
Federal law sets the baseline. States must reduce weekly unemployment benefits by the amount of a pension, annuity, or similar periodic payment based on past work.
The federal rule generally applies to pensions from a base-period employer or another employer responsible for the claim, and for most pensions, work during the base period must also have increased the worker’s pension rights.
Two details matter. States may limit the reduction to account for money the worker contributed himself (§ 3304(a)(15)(A)(ii)).
Benefits cannot be cut for payments that were rolled over and therefore not taxed (§ 3304(a)(15)(B)).
In practical terms, a monthly pension check from the company that laid him off is the payment most likely to reduce unemployment benefits. His own IRA, or a 401(k) he rolls into one, generally falls outside that rule.
Each state writes its own rules within this federal framework, so the state unemployment agency has the final word.
Unemployment counts as taxable income under 26 U.S.C. § 85(a).
The worker can file Form W-4V with the office that pays his benefits, which will withhold 10% of each payment. If he skips that step, he may owe estimated tax.
Because he is past age 59½, his IRA withdrawals avoid the 10% additional tax. They still count as taxable income and are taxed at the same rates as a paycheck.
Consider an example: unemployment of $2,400 a month, IRA withdrawals of $2,000 a month, 10% withholding from each payment, and monthly bills totaling $4,500. Keeping the IRA withdrawal modest and filling the gap with cash can keep taxable income lower, which can matter when he buys health insurance.
Social Security’s earnings test does not count unemployment benefits or IRA payments as earnings (SSA Handbook § 1812). The test applies only to wages and self-employment income above $24,480 in 2026, so collecting unemployment would not, by itself, reduce an early Social Security check.
Taking Social Security at 63, however, locks in a permanently smaller check. Federal law addresses Social Security payments, but the effect on unemployment benefits depends on state rules.
New Jersey does not reduce unemployment benefits because someone collects Social Security. Using IRA savings to delay Social Security can increase future monthly benefits, but the better choice depends on savings, expenses, health, and expected retirement income.
COBRA allows him to keep his former employer’s health plan for a limited time. Losing job-based coverage also opens a 60-day window to sign up for a Marketplace plan, where savings are based on income.
IRA withdrawals raise the income figure used to set those savings, so each extra dollar withdrawn can reduce premium help. He should compare both options before his coverage ends.
New unemployment claims remain historically low, although that does not necessarily mean a 63-year-old job seeker will find work quickly. Initial jobless claims were 189,000 in the week ending October 31.
The most common mistake is starting a company pension right away because it feels like retirement income, since that payment is most likely to cut unemployment benefits. Before withdrawing any money, the worker should call his state unemployment office and ask whether IRA withdrawals, a 401(k) rollover, or a former employer’s pension will reduce his weekly benefit in that state, and whether he must report any of them.
He should get the answer in writing, then roll the 401(k) into an IRA, withdraw only what the budget needs, and wait to start the pension until unemployment benefits run out.
