What should you do with your share of a 401k?

As you enter into your divorce proceedings in Alexandria, you should know every option available to you when it comes to the topic of property division. Several of the assets that the court considers to be shared can present a number of complexities. Chief among these is a 401k. If your ex-spouse maintains such an account, you may be entitled to an equitable portion of the contributions made to it during your marriage. The question then becomes how can your best manage this asset? 

According to the 401k Help Center, one of the more common ways that divorcing couples choose to divide up the portion of a 401k that is subject to property division is to roll the non-contributing spouse's portion over into another retirement account (either your own 401k or an individual retirement account). The main benefit of doing this is that the funds therein are then allowed to grow through investments and earned interest, which can prove to beneficial when you need to start relying on them as part of your income when you retire. Yet this also means that money cannot benefit you right now. 

It is commonly known that if you withdraw funds from a tax-deferred retirement savings account early (and in this context, the federal government considers any time before you reach the age of 59 1/2 as being early), that you are forced to pay a tax penalty of up to 10 percent. However, when the divorce court issues a Qualified Domestic Relations Order in your case, that penalty is waived (you do still have to pay income tax if you cash out your portion of the 401k). Cashing out your share of the 401k can help you if you need money right now to buy a new home or go back to school. 

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Russell W. Ray, PLLC
6212-A Old Franconia Road
Alexandria, VA 22310

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