Hi, I was laid off from my job almost 2 months ago now, although I'm collecting unemployment, I've got some bills that are starting to pile up. I was going to just pay the penalty and take some money out of my 401k, but I heard that if I do I won't be able to collect unemployment. First off, I'm wondering if that is true. I was told by someone else that if I rollover my 401k to an IRA, that I can use that as a line of credit, and although I would still have to pay the penalties, it would not affect unemployment. Anyone know anything about Michigan laws on this? Also, if I am able to convert it to an IRA and withdraw money, how long would I have to pay it back?

Thanks!

First - taking a withdrawal from your 401(k) - or IRA for that matter - would not affect your unemployment eligibility. Here's a link to Michigan's site that explains what you can expect:
http://www.michigan.gov/documents/uia_ClmUnempBenFactSheet36English_76381_7.pdf

Second - I don't undersand the comment about using an IRA like a "line of credit" - you have to pay income taxes plus the early withdrawal penalty on any withdrawal unless you roll it to another IRA or repay the full amount within 60 days. There is no "loan provision" for IRAs like there is for 401(k) plans.