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Confused in NE

Junior Member
What is the name of your state? Nebraska

I have what I hope is a simple question.

My girlfriend has been separated for over 2 years. She has been divorced since April 07. In the divorce decree she is being given 39K for marital assets her EX is keeping. Those assets include 2 vehicles, a boat, the house, and half of his 401K. Now after fighting for the last 4 months there has finally been an account opened in her name with the same plan administrator for his 401K. She is going to be taxed on this money. She understands that.
1. Why is it that the plan administrator is going to charge her an early withdrawl penalty to cash out this account?

2. Why does she have to pay the 10% tax because she is under 59 ½?

Keeping the money in the 401K is not an option at this point. She needs the cash to pay off bills so she can survive.

Any help would be great!! The lawyer bills are already way too high because of how long he has drawn this out!!!
 


Ohiogal

Queen Bee
1. Why is it that the plan administrator is going to charge her an early withdrawl penalty to cash out this account?

2. Why does she have to pay the 10% tax because she is under 59 ½?
Keeping the money in the 401K is not an option at this point. She needs the cash to pay off bills so she can survive.
You have answered your own questions. A little thing called the law requires the above.
 

LdiJ

Senior Member
What is the name of your state? Nebraska

I have what I hope is a simple question.

My girlfriend has been separated for over 2 years. She has been divorced since April 07. In the divorce decree she is being given 39K for marital assets her EX is keeping. Those assets include 2 vehicles, a boat, the house, and half of his 401K. Now after fighting for the last 4 months there has finally been an account opened in her name with the same plan administrator for his 401K. She is going to be taxed on this money. She understands that.
1. Why is it that the plan administrator is going to charge her an early withdrawl penalty to cash out this account?

2. Why does she have to pay the 10% tax because she is under 59 ½?

Keeping the money in the 401K is not an option at this point. She needs the cash to pay off bills so she can survive.

Any help would be great!! The lawyer bills are already way too high because of how long he has drawn this out!!!
When a retirement plan is divided due to a divorce, each party is held to the federal tax laws regarding early distributions.

She has three choices...

1) She can leave the newly established account for her alone until she is 59 1/2, or 2) she can roll over the account into another retirement account until she is 59 1/2, or 3) she can take a distribution now, and pay the taxes now. Its pretty simple.
 
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tuffbrk

Senior Member
Cld you just clarify that for me Ldij? The penalty would only be related to her portion of the 401k right? If the Ex chooses to make the full disbursement for her portion of the home and boats from the 401k, then that's his tax obligation...true?
 

nextwife

Senior Member
401ks are not intended to be regular savings accounts. The money is pretax, thus tax and penalties are due if withdrawn early.

if she has any whole life policy can she borrow against the cash value? It is really unwise to dip into one's retirement until every single other alternative has been thoroughly explored and exhausted.

Is she working?
 
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Bali Hai

Senior Member
What is the name of your state? Nebraska

I have what I hope is a simple question.

My girlfriend has been separated for over 2 years. She has been divorced since April 07. In the divorce decree she is being given 39K for marital assets her EX is keeping. Those assets include 2 vehicles, a boat, the house, and half of his 401K. Now after fighting for the last 4 months there has finally been an account opened in her name with the same plan administrator for his 401K. She is going to be taxed on this money. She understands that.
1. Why is it that the plan administrator is going to charge her an early withdrawl penalty to cash out this account?

2. Why does she have to pay the 10% tax because she is under 59 ½?

Keeping the money in the 401K is not an option at this point. She needs the cash to pay off bills so she can survive.

Any help would be great!! The lawyer bills are already way too high because of how long he has drawn this out!!![/QUOTE]

Men tend to get cranky and drag these things out when they are being taken to the cleaners by a gold digger!!
 

LdiJ

Senior Member
Cld you just clarify that for me Ldij? The penalty would only be related to her portion of the 401k right? If the Ex chooses to make the full disbursement for her portion of the home and boats from the 401k, then that's his tax obligation...true?
Ah...that is an interesting issue....which should have been addressed when the agreements were made.

Everything but the 401k would have been a non-taxable event. Therefore, if the entire payout is being funded by his 401k, she IS unfairly being taxed on her share of the home's equity, and the equity in the other assets. However, there is no way, within the tax code, to shift that burden to him.

Lets hope that he is refinancing the home to pay out the equity in the rest of the assets. Otherwise, she may be sol.

However, based on the overall amount of assets, I kind of doubt that his 401k has enough money in it to fund the entire 39k.
 

LdiJ

Senior Member
What is the name of your state? Nebraska

I have what I hope is a simple question.

My girlfriend has been separated for over 2 years. She has been divorced since April 07. In the divorce decree she is being given 39K for marital assets her EX is keeping. Those assets include 2 vehicles, a boat, the house, and half of his 401K. Now after fighting for the last 4 months there has finally been an account opened in her name with the same plan administrator for his 401K. She is going to be taxed on this money. She understands that.
1. Why is it that the plan administrator is going to charge her an early withdrawl penalty to cash out this account?

2. Why does she have to pay the 10% tax because she is under 59 ½?

Keeping the money in the 401K is not an option at this point. She needs the cash to pay off bills so she can survive.

Any help would be great!! The lawyer bills are already way too high because of how long he has drawn this out!!![/QUOTE]

Men tend to get cranky and drag these things out when they are being taken to the cleaners by a gold digger!!
Bali, this is a simple property settlement. How do you know that she didn't contribute just as much to those assets as he did?
 

LdiJ

Senior Member
Lucky guess?
Presumptious guess.

The majority of couples these days have both of them working. The majority of couples these days cannot even qualify for a mortgage unless both of them are working and bringing in reasonable wages.

Therefore your assumption that every woman who receives cash in a divorce property settlement is a golddigger, is way off the mark.
 

Confused in NE

Junior Member
Thank You all for the constructive information. It didnt work out exactly as she had hoped but it is now worked out. At least the administrator dropped their penalty. Again at least its done for her now.
Bali..... Thank you so VERY much for your opinion! It helped answer my questions so wonderfully!!!
 

Bali Hai

Senior Member
Thank You all for the constructive information. It didnt work out exactly as she had hoped but it is now worked out. At least the administrator dropped their penalty. Again at least its done for her now.
Bali..... Thank you so VERY much for your opinion! It helped answer my questions so wonderfully!!!
Glad to helpout. Don't mention it.
 

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