Money question, Penalty for taking money from 401k...

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Kevin Palmer

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Ok, my ex has to give me $28,000. She is doing so from her 401k to my TSP (Basically the governments version of a 401k).



I was wondering what the penalty would be if I was to simply take say 7 grand of it in the form of cash.



Why???

It would cover all but a small amount of the debt I owe excluding a car payment as I just figure I will have a payment pretty much forever (I normally keep a vehicle 2.5 yrs or so).



If I had to guess, I would think that the potential to make money does outweigh the penalty. But,, if I simply pay off these monthly bills it will give me about a Grand a month of money that I am presently giving up to pay the bills that the 7 grand would cover (minus the penalty that is).



Sooo, let me have it.. LOL
 
The withdrawl would be treated as income for the current year, so there would be the normal income tax. The amount of tax depends on your tax bracket. Then a 10% penalty is added. You pay all this with your income taxes.
 
I did same thing in my divorce. Ex took most all the cash and left me the house and everything else. I had to cash out some 401k to get the money to pay her off. Even with the penalty, it was worth it to get rid of her. :lol:
 
You're better off putting the money in your TSP and paying the bills over time. You'll pay nearly a grand in penalty as well as taxes on it, no where near worth it.
 
Ok,,,

First, no matter the advice given, YES I will check with my accountant.. LOL



2nd. to be very clear, here is the layout.



I agreed to let her keep the house. As a result, she owes me money. I will get some now and MORE in 10 yrs. I did it this way so that she will have the monthly money she needs to pay for the house and maintain it.



So in a nut shell, she has a 401k that is solely hers, no connection to me at all. She is to transfer 28 grand to my TSP, as noted above the Governments version of a 401k.



If I was to pay about 5 to 6 grand off of miscellaneous bills, it would make my monthly living VERY good. It is not bad now, but this would make it very comfortable as I would not be paying about 1100 a month for the next 6 months or so.



So I am interested in the penalty to take about 7 grand.



Bill, you mention that it would cost her, how is that? It is transfered to my account, how does this put the penalty on her. Not saying you are wrong, I just don't see how if it is mine (once transfered) then how does she get penalized???



Thanks in advance all...
 
Rich,

that is what I was thinking in general. Just wondered if that grand was worth the loss vs. the interest in the bills I am carrying for the next 6 months or so...



I expect that the grand is more of a loss, plus the potential money it can make will in my TSP as well. Thus even more of a loss as I will retire in 12 yrs from this job (having two separate government pensions).



It sure would be nice to no pay the 1100 a month I presently am paying in these miscellaneous bills. I have th money, just would be nice is all...
 
HAVE HER withdraw the money, have her give you a cashiers ck, forget the tranfer if possible.

her withdrawel, she pays the penalty.
 
Well, quick math tells me that on say 7 grand, you lose almost 2 grand to payroll taxes (figured 28%), then 500 more to the 10% penalty. Thus leaving me with 4500 of the initial 7 grand.



Sooo, no worth it as that really only covers 4 months of what I want to do and at a cost of 2500.



And the present bills I am paying are all at zero percent...



So, I believe I answered my over-all question
 
I agree Bill.



I am just saying she is not too impressed that she has to give me money. I am positive she will not take the penalty. She will do what is needed to get it to my account and then would say "now you draw it out if you want to."
 
I just called my tax guy, the bottom line is, any movement of her 401K, if in her name soley, she pays the 10% premiture withdrawel, shes just jacking you around coastie.You pay 0 penaltys.
 
She and I have not talked about it all. So she isn't jacking me around (at least not yet anyways...). I was asking just so I better understood what the potential ramifications were/are.



This will all go down in the near future, so I am just feeling out various options was all.
 
Bill's right. Its HER penalty, not yours. If she owes you $7k, she may have to withdrawl $11k to get the $7k to pay you. The penalty is her problem.



Its NOT income to you- no need for you to pay income taxes. Its part of a property settlement, that's all.



If she doesn't want to pay IRA penalty, she should get a loan to pay you the money.
 
Bill's right. Its HER penalty, not yours. If she owes you $7k, she may have to withdrawl $11k to get the $7k to pay you. The penalty is her problem.



Its NOT income to you- no need for you to pay income taxes. Its part of a property settlement, that's all.



If she doesn't want to pay IRA penalty, she should get a loan to pay you the money.
 

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