QUESTION
When splitting assets are funds available when divorce is final or does 401k incur penalty and taxes?
Asked on Feb 09th, 2013 on Divorce - Delaware
10 ANSWERS
Mediation Attorney serving Bloomfield, NJ
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Cassandra T. Savoy, PC
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If your question is do the parties have to pay a penalty to share the 401K, the answer is maybe. If one party wants to withdraw the money as cash, then that party will have to pay the taxes/penalties. If the party does not want cash, the money can be rolled over into an Individual Retirement Account or other qualified plan as a 1031 transfer without incurring the penalty or paying taxes.
Answered on Feb 12th, 2013 at 2:37 PM
John Arthur Smitten
In a divorce setting there is typically not a penalty when dividing up a 401k - in a divorce case.
Answered on Feb 12th, 2013 at 2:35 PM
The 401k funds are handled by means of a written document and are "rolled over" into separate accounts for each of you so that there is no tax trigger that occurs.
Answered on Feb 12th, 2013 at 2:35 PM
Probate Law Attorney serving Colorado Springs, CO
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John E. Kirchner
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Distribution of 401k funds requires a unique court order called a "Qualified Domestic Relations Order" or QDRO. Prepare these orders requires certain amount specialized expertise by an attorney who understands pension laws. When funds are distributed by a QDRO there is no penalty for an early withdrawal. There will be no taxes if the funds are rolled over into another qualified account, such as an IRA. IF not rolled over, withdrawals are subject to income tax.
Answered on Feb 12th, 2013 at 2:32 PM
The 401(k) needs to be filled over into a qualifying Rollover IRA. If you do not do this, you will incur tax and penalties for early withdrawal.
Answered on Feb 12th, 2013 at 2:32 PM
Divorce/Family Law Attorney serving Carlsbad, CA
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Anne B. Howard, A Professional Law Corporation
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$401k gets divided but if funds are released there's taxes and penalties.
Answered on Feb 12th, 2013 at 2:32 PM
Alternative Dispute Resolution Attorney serving Ventura, CA
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Zahn Law Office
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Taxes and penalties can be avoided by doing a direct rollover into an IRA from the 401(k). Talk to your banker/tax professional about the process to avoid taxes and early withdrawal penalties.
Answered on Feb 11th, 2013 at 11:24 PM
Divorce Attorney serving Frisco, TX
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Mackoy, Hernandez, Jones and Woods LLP
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Withdrawal from a 401k carries income tax consequences with it.
Answered on Feb 11th, 2013 at 11:13 PM
Estate Planning Attorney serving Wilmington, DE
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Reger Rizzo & Darnall, LLP
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401k has all normal rule relating to penalty and taxes despite property settlement.
Answered on Feb 11th, 2013 at 11:13 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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Taking IRA funds will cause taxes to be incurred, however, if the rules are followed, sometimes the early withdrawal penalty can be avoided.
Answered on Feb 11th, 2013 at 11:13 PM