How do I turn over $30,000 from husband's 401k without incurring huge tax/penalty?

(From Faggio Financia, www.divorce-finances.com) Under a special section of the Internal Revenue Code (72(t)(2)(c), an alternative payee (i.e. the non-employee spouse) can take cash from a Qualified Plan (such as a 401k), *without the 10% penalty , even if they are under age 59?. To avoid the penalty, the following criteria must be met: - The retirement plan must be a qualified plan covered by ERISA (e.g. 401K and Defined Contribution Plans); - The funds must be paid to an alternative payee, not the owner of the account; and - A Qualified Domestic Relations Order (QDRO) must be created and used to divide the plan The amount paid is taxable income to the alternate payee and the employer will withhold 20% of the distribution to prepay the tax. So whatever non-employee?s cash need is, the 20% withholding should be taken into account when asking for a withdrawal. If the spouse who is entitled to the distribution does not need all of the cash, part could be paid in cash and part could be transferred to that spouse's IRA. There will not be a 10% early distribution penalty on the cash paid out or the transfer.

For that type of advice you should be talking to a CPA or Tax Attorney. Most Family Law attorneys are not tax specialists.

Check with the plan administrator as to how to take money out of the plan as established for you by the QDRO. I know that if you withdraw it all at once, there will be a huge tax penalty. You might also talk to an investment counselor who can perhaps help you transfer your portion of the QDRO'd account to another whereby you can withdraw interest or other income from the account.

If the QDRO is written correctly you can take the cash out now without rolling into an IRA and without a penalty but you still have to pay taxes. The way to incur no taxes or penalty is to roll it over into an IRA.

Unless the money from the 401k is invested in a similar type retirement account it is likely there will be a tax penalty on early withdrawal. You should seek the advise of a tax professional prior to taking any distribution of this money.

If you take it out you will not be penalized but you will pay tax at your normal tax rate. Talk to an accountant to see if there is a way to minimize it.

You need to consult with a CPA or other tax professional, to determine if your segregated portion of this asset can be migrated to another financial account or vehicle of your own selection, and to assist you with determining your options and what is best for you under your particular circumstances.

That money must be rolled over to a qualifying IRA. You can start withdrawing without penalty at age 59 1/2.