# What to do after a layoff

> File for unemployment, secure health coverage, cut to essentials, count your runway and don't cash out your 401(k).

Source: https://www.walletprep.com/learn/what-to-do-after-a-layoff/ · Updated 2026-10-04 · Work and income

In the first week after a layoff, file for unemployment, pick your health coverage and cut your budget to essentials. Then add up your cash, severance and benefits to see how many months you can cover, and leave your 401(k) alone.

## Key facts
- **File for unemployment right away.** File with the state where you worked in the first week. Most states pay for up to 26 weeks, and the first payment usually comes 2 to 3 weeks after you file.
- **Health coverage has a 60-day window.** COBRA lets you keep your work plan, usually for up to 18 months, but you pay the full premium. A Marketplace plan may cost less with savings based on your income. Both have 60-day enrollment windows.
- **Leave your 401(k) invested.** Cashing out before 59½ usually costs income tax plus a 10% additional tax. If you move it, use a direct rollover to an IRA or a new plan so nothing is withheld.
- **Severance is taxed as wages.** The IRS treats severance as wages, so income tax, Social Security and Medicare come out of it. Plan from the amount after tax, not the gross figure in the letter.

## Day one and two
Before you leave, or as soon as you can, collect what you'll need: your last pay stubs, the separation letter, the severance offer, your benefits summary and the contact for HR. Save personal files, like your own tax forms, but don't take anything that belongs to the company.
Then file for unemployment. Find your state through the Department of Labor's CareerOneStop finder and file online. Do it even if you're getting severance or think you might not qualify. Your state decides, and filing late can cost you weeks of benefits.

## Health insurance
Ask HR the exact date your coverage ends. You then have two main paths. COBRA keeps the same plan, doctors and deductible progress, usually for up to 18 months, but you pay the whole premium including the part your employer used to pay, plus a small fee. You have 60 days to elect it, counted from when coverage ends or when you get the notice, whichever is later.
The other path is a Marketplace plan at HealthCare.gov or your state's exchange. Losing job-based coverage opens a Special Enrollment Period, so you can sign up within 60 days. Savings are based on your expected income for the year, so a lower income after a layoff can mean a much lower premium. If your income drops low enough, you may qualify for Medicaid.

## Your last paycheck and severance
Federal law doesn't require an employer to hand over your final paycheck right away, but some states do. State law also decides whether unused vacation must be paid out. Your state labor department can tell you the rules where you worked.
Severance is a payment some employers offer when they let you go. It often comes with an agreement that you won't sue the company, plus a deadline to sign. Read it closely, ask questions in writing and consider a short call with an employment lawyer if the amount is large. Severance is taxed like wages, and in some states it can delay or reduce unemployment benefits.

## Your 401(k) and other workplace accounts
You don't have to do anything with your 401(k) right now. Most plans let you leave the money where it is, and later you can move it to an IRA or a new employer's plan with a direct rollover. A check paid to you instead has 20% withheld for tax, and you then have 60 days to deposit the full amount.
Cashing out is the expensive choice. You owe income tax on the whole amount, and before age 59½ there is usually a 10% additional tax as well. One exception: leaving your job in or after the year you turn 55 skips that extra tax on that employer's plan. If you have an outstanding 401(k) loan, ask the plan right away what happens to it when you leave, because an unpaid loan can be treated as a withdrawal. If you have an HSA, it stays yours and can pay medical bills, including COBRA premiums.

## Count your runway
Cut your budget to essentials: housing, utilities, food, insurance, transport and minimum debt payments. Subtract your expected unemployment benefits to get your monthly gap. Then add your savings and your severance after tax, and see how many months of gap that covers.
Remember that benefits end, often after 26 weeks or less. After that, the full cost of your essentials comes out of savings. The worked example below shows how to count both stretches.

## A worked example: how long the money lasts
Sam was laid off with $9,000 saved and $6,000 of severance after tax. His essentials are $3,000 a month and unemployment pays $1,800 a month for 6 months.

- Savings: $9,000
- Severance after tax: $6,000
- Cash on hand: = $15,000
- Gap while on benefits: $1,200
- 6 months of gap: −$7,200
- Left when benefits end: = $7,800
- Months more at $3,000: 2.6
- Total runway: 8.6

1. Sam's gap while on benefits is $3,000 − $1,800 = $1,200 a month. Over 6 months that is $1,200 × 6 = $7,200.
2. His cash is $9,000 + $6,000 = $15,000. After 6 months he has $15,000 − $7,200 = $7,800 left.
3. With no benefits, $7,800 ÷ $3,000 = 2.6 more months. His total runway is 6 + 2.6 = about 8.6 months.

## Common mistakes
- **Cashing out the 401(k).** A $10,000 cash-out before 59½ usually has $2,000 withheld and owes a $1,000 additional tax, and more income tax can be due in April. Use savings, severance and benefits first.
- **Letting health coverage lapse.** Missing both 60-day windows can leave you uninsured until the next open enrollment. One hospital visit without coverage can cost more than a year of premiums.
- **Keeping the old budget.** Spending at your old level for the first month or two burns the cash you need later. Cut to essentials on day one, and add things back once you have a new offer.

## Questions people ask
### Should I take severance or file for unemployment?
You can usually do both. File for unemployment right away and report the severance. Depending on your state, severance may delay benefits, reduce them or not affect them at all.

### Is COBRA or a Marketplace plan cheaper after a layoff?
Often the Marketplace, because savings are based on your income for the year and a layoff lowers it. COBRA can still make sense if you've already met a big deductible or need to keep specific doctors.

### Can I negotiate my severance?
Sometimes. You can ask for more weeks of pay, help with COBRA premiums, a later start date for any noncompete, or a neutral reference. Ask in writing before the signing deadline.

### What bills should I pay first after losing my job?
Housing, utilities, food, insurance and transport to interviews come first. Then minimum payments on secured debts like your car loan. Call card issuers and lenders about hardship options before you fall behind.

## Do this today
File your unemployment claim, then write your monthly essentials on one page. Subtract your expected benefits and divide your cash plus severance by the gap. Put that runway number where you'll see it.

## Sources
- [CareerOneStop (US Department of Labor): Unemployment Benefits Finder](https://www.careeronestop.org/LocalHelp/UnemploymentBenefits/find-unemployment-benefits.aspx)
- [US Department of Labor: COBRA continuation coverage](https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra)
- [HealthCare.gov: Health coverage options if you're unemployed](https://www.healthcare.gov/unemployed/)
- [HealthCare.gov: Special Enrollment Period](https://www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/)
- [US Department of Labor: Last paycheck](https://www.dol.gov/general/topic/wages/lastpaycheck)
- [IRS: Rollovers of retirement plan and IRA distributions](https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions)
- [IRS: Publication 15, Employer's Tax Guide (severance pay)](https://www.irs.gov/publications/p15)
- [IRS: Exceptions to tax on early distributions](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions)

_General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act._