Have you wondered: Can I collect unemployment benefits if I have investment income? The short answer is: Yes you can!
Unemployment benefits are tied to work income, not investment income. Therefore, if you’ve lost your job through a layoff or severance negotiation, then you are eligible for unemployment benefits, even if you have investment income.
Investment income is passive income and not W2 or 1099 income. Therefore, you are technically not employed by owning dividend stocks, rental properties, and other income-producing assets.
The government does NOT penalize you for saving and investing your money wisely to generate investment income. The government just wants to make sure you do not collect unemployment insurance while you still have a job. If you do, that’s fraud.
Earning Investment Income And Collecting Unemployment Benefits
Let’s say you work for 10 years and diligently save 50% of your after-tax income every year. You amass $500,000 and decide to invest 25% in real estate crowdfunding, 50% in dividend paying stocks, and 25% in municipal bonds. Your total investment income from your portfolio is roughly $35,000 a year.
You love your job, but due to a restructuring, you are let go. The $35,000 a year you earn in passive income has no bearing on your ability to collect unemployment benefits since the $35,000 a year is a result of your past work.
You are no longer working to make that money, as that money is now working for you. Your company could technically refute the unemployment benefit claim upon realizing you earn investment income, however, you don’t have to reveal your personal finances to your employer. And if they do deny you, you have recourse.
Always Negotiate A Severance And Get Laid Off
Hopefully you have not been laid off yet and are just planning ahead. But if you have been laid off, you absolutely should claim unemployment insurance ASAP. You have every right to collect unemployment insurance every week for ~26 weeks from your state because your firm and you paid into your unemployment benefits while working.
If you haven’t been laid off yet, good. Never quit your job, get laid off. If you get laid off, you can collect unemployment benefits. If you quit your job, you cannot qualify for unemployment benefits because the government will rightfully reason that you don’t need unemployment benefits since you quit.
Further, you should always try and get laid off and negotiate a severance. Not only can you collect unemployment benefits, you can potentially get a severance check that pays you 1-3 weeks of salary for every year you worked. You may also be able to receive all your deferred compensation as well.
I negotiated a severance in 2012 and received a six-figure severance check and ALL my deferred stock and cash compensation that paid out until 2017. That’s 5 years worth of income. If I quit, I would have got nothing!
I believe so strongly in negotiating a severance that I wrote a book, now in its 4th edition for 2021 and beyond called, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye.
The book now has over eight years of reader case studies and feedback to draw from.
Always Develop Investment Income
Try to save and invest aggressively to generate as much after-tax investment income as possible. You can’t touch your 401(k) and IRA money without a 10% penalty until age 59.5.
Here is my latest rankings for the best passive income income. It’s up to you to choose what you understand and enjoy the most that fits your investment risk tolerance.
I personally love real estate and own four properties in San Francisco and Honolulu. However, as I’ve gotten older, I no longer have the desire to deal with tenants and maintenance issues.
I’m all about investing in real estate and earning as much passive income as possible to take care of my two kids.
The more passive income you have, the more options and freedom you will have. If you can collect unemployment benefits in the meantime, while you try and figure your life out, all the better!