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Retirement Cashout

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kenergy123

Junior Member
What is the name of your state? California

My sister's divorce is final in two weeks. She was married for 12 1/2 years
to a teacher with a STRS account (State Teachers Retirement Savings).
The account was established 9/1989, the marriage was 12/1991,
separation 7/2004. She really needs to cash out her part of the retirement fund, she is dead broke and not surviving on a single child support check
each month. She has a 5 year old with Cystic Fibrosis and cannot work
full time. She has bills and a car loan that can be wiped out with this money,
to be down to cost of living. Is it possible to get the money now, instead of having to wait until he retires? She does not want to have the STRS account.

Thank you for your advice.
Ken
 


LdiJ

Senior Member
kenergy123 said:
What is the name of your state? California

My sister's divorce is final in two weeks. She was married for 12 1/2 years
to a teacher with a STRS account (State Teachers Retirement Savings).
The account was established 9/1989, the marriage was 12/1991,
separation 7/2004. She really needs to cash out her part of the retirement fund, she is dead broke and not surviving on a single child support check
each month. She has a 5 year old with Cystic Fibrosis and cannot work
full time. She has bills and a car loan that can be wiped out with this money,
to be down to cost of living. Is it possible to get the money now, instead of having to wait until he retires? She does not want to have the STRS account.

Thank you for your advice.
Ken
If she has been awarded a share of the retirement account, and it has properly been divided via a QDRO, and if its the type of account where the funds are able to be withdrawn at all, then yes, she can cash out her share.

However, she needs to be aware that she will have to pay income taxes on the money, and that there will also be an additional 10% penalty on top of regular income taxes. Therefore, she should have at least 20% - 25% withheld for taxes (they should be able to do that for her) and she probably ought to wait until after January 1st to cash out.
 

blusafire

Member
She should check IRS Publication 575. Pension and Annuity Income. Under Additional Exceptions for quailfied retirement plans. The tax does not apply to distributions that are : "From a Qualified Retirement Plan (other than an IRA) to an Alternate Payee under a Qualified Domestic Relations Order (QDRO). Yes, she will have to pay income tax, but not necessarily the 10% penalty.
 

LdiJ

Senior Member
blusafire said:
She should check IRS Publication 575. Pension and Annuity Income. Under Additional Exceptions for quailfied retirement plans. The tax does not apply to distributions that are : "From a Qualified Retirement Plan (other than an IRA) to an Alternate Payee under a Qualified Domestic Relations Order (QDRO). Yes, she will have to pay income tax, but not necessarily the 10% penalty.

In this case she will have to pay the penalty, because she is actually cashing out. She would not have to pay any tax, or the penalty if she was not cashing out.

The reg you mentioned has to do with her ex, not her. If her ex had to withdraw the money to give it to her, and therefore was obligated for the taxes on the money, then that would waive the penalty to him....because he is paying it to her under a QDRO.
 

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