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

[Thomas Rogers]

Coastie,



Here is how I look at it (not judging, but I am choosing my words intentionally below).



In one statement you say that you each agreed to not touch each others retirement accounts and I can understand that from the standpoint of trying to keep things civil.



Then, in the next statement, you say that your ex is using her 401k to pay you what she owes you, and to be a nice guy, you are letting her do that that NOT through a withdrawal, but essentially through a QDRO, as I described above. I say that because it would be ONLY through a QDRO that you can roll-over the funds into your TSP and neither of you get penalty or taxes.



So, you said, you weren't OWED any of her 401k, but through choices you are both making you are getting a part of her 401k, and getting it in the same manner you would if you were owed it via a QDRO.



So, since you are being a nice guy, you have to roll over the money, and then you have to take a loan against your TSP if you want to pay your bills.



That's all good. But if it were me, I would have her pay you in a liquid form. Have HER borrow the money from here TSP. That way she gives you cash, tax and penalty free, and she pays herself back her own loan.



If I were your accountant I would advise against what you are describing, if for no other reason that I think you are taking money that should have already been taxed and putting it into a "to be taxed later" vehicle, essentially having taxes paid on those monies twice.



TJR

 

[Richard L]

Coastie,

Divorce settlement proceedes are NOT taxable income, with a couple of possible exceptions (check with a tax attorney) for some of the funds:



1) Proceeds from a home sale, or home buy-out, as you could be liable capital gains tax if the home in question rised significantly in market value between purchase and buy-out.

Duh? I thought I said that in my post?



Anyway, I think you are getting way to involved in how your ex-wife comes up with the $28K she owes you. That's her problem not yours. If she does not pay you, you can sue her for the money. Since it is in the divorce agreement that she will pay you $28K and has not done so, she does not really have a legal leg to stand on. She could be made to pay you the $28K she owes you, plus all of your attorney fees, which could easily be another $10K more, and she may be ordered to pay you interest on the money she owes you.



I think if you get your attorney to file a lawsuit in court, she will get the money an pay you very quickly and it will never have to go to court.



...Rich

 

[Johnny O]

TJR is a wise man. Again, if she has to take $35k (to pick a number) out of her 401k in order to give you $28k after taxes and penalties, that's her problem. Besides which, the real estate market will eventually recover and the house will be worth more later anyway, so she'll get that back and then some. Just sayin'....

 

[Les]

Take the 28 K if your intiteld, you pay no penalty, she do's.

As Bill B said 5 days ago...

 

[Gavin Allan]

Richard L nailed it.



You want to be "fair" but not "bend over". Face it-- no matter what the cause or who's fault or idea, a divorce is a LAWSUIT. She is not your friend anymore. You are suing her or she is suing you for a divorce. You need a good attorney to take care of your interests, just like it seems she does have a good attorney to take care of her interests.



It sounds like you are very nice guy and/or very courteous. It also sounds like maybe you don't want a divorce (which is OK). Get some counseling, man! Get her to go with you. Maybe you don't really need to divorce. There's nothing wrong with reevaluating and changing your minds. Maybe you both have learned something and come to a different conclusion going through what you have gone through so far.



I'm sorry, but divorce is very stressful. It was the single most worst thing I have ever done. There was absolutely no fighting or arguing in mine, and we both used the same lawyer (joint petition). Even so, it was very painful and now, 11 years later, I still have scars. Your mind is all messed up right now (that is normal). You should not be anguishing over this silly bit of money. You shouldn't be so concerned with her needs or wants if you are divorcing (suing) her, or if she is divorcing (suing) you.



Sorry to be so curt here. I feel for you. Divorce is hell. I pray God gives you strength and wisdom.

 

[Kevin Palmer]

Gavin,,

We are definitely going through with the divorce. We both agree we are not happy together.



After calling her lawyer, I pretty much gave ultimatums, no longer negotiable type statements.



As it stands now, I told her I will accept half in the form of a transfer from her 401k to my TSP and half liquid. I suggested she borrow from her 401k to make this happen. She would pay back to her self plus 4%. So this is not a bad deal for her.



In the end, yes I am trying to be nice but I do have a responsibility to myself. That was/is a very hard place to be and still be a nice guy.



I received the papers today via e-mail so I do need to go through them and make sure they are what they should be.



I do appreciate all of your suggestions and help. It has been interesting to see and hear the various points of views...



Thanks all..

 

[Les]

Divorce is hell

+1

 

[Gavin Allan]

Good luck Coastie, and my God watch over you.