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Should you withdraw your 401k allotment right now?

On Behalf of | Apr 15, 2019 | Family Law |

While certainly a good deal of the effort that goes into divorce proceedings in Westminster addresses your past with your ex-spouse, the main goal of is to help both of you prepare for the futures that you face without each other. One important element to consider when pondering this is how you might best leverage the assets afforded to you during your property division proceedings to support yourself. If one of these assets is funds from your ex-spouse’s 401k, then you will want to carefully contemplate the many options available you when dealing with them. 

This is due to that fact that funds from a retirement account are often treated differently than regular assets. Special tax considerations accompany 401k accounts in particular. As taxes are deferred on these funds, you will want to consider whether it is advantageous for you to withdraw them right now. Typically, a 10 percent tax penalty is levied any time funds are withdrawn from a 401k prior to a recipient reaching the age of retirement. However, divorce is one of the rare scenarios where this does not apply. According to information shared by CNBC, when the court issues a Qualified Domestic Relations Order in your case, that order stipulates that you are able to access retirement fund immediately without the threat of a tax penalty. Keep in mind, however, that you will have to pay income tax on whatever you do withdraw. 

You may also want to consider the benefit off rolling those funds over into your own retirement account. While doing so does deprive you of the benefit of using them right now, you could grow them through gains and earned interest over the years, thus providing you with even more when you yourself reach retirement age. 

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