Start Pros and cons of liquidating 401k

Pros and cons of liquidating 401k

Money withdrawn from a retirement account is taxable the year it is withdrawn and there is no way around that.

For the sake of simplicity, Im going to use the term 401(k) in this article for all employer-sponsored plans.

I also want to be specific that these four methods avoid only the 10% penalty tax for early withdrawal.

For example, a 50-year-old who takes $20,000 from an IRA would pay a $2,000 penalty tax as well as the income taxes on the entire $20,000.

Maryland Divorce Start Your Divorce Find Professionals Maryland Articles Divorce Facts Divorce Grounds Residency Divorce Laws Mediation/Counseling Divorce Process Legal Separation Annulments Property Division Alimony Child Custody Child Support Divorce Forms Process Service Grandparent Rights Forum Maryland Products Divorce by County Welcome About Us 100% Guarantees Central Log in Contact Us Find Professionals Start Your Divorce States Categories Forms Divorce Laws Articles Forums Blogs Encyclopedia Checklists Tools Bookstore For Professionals Maryland Divorce Start Your Divorce Find Professionals Maryland Articles Divorce Facts Divorce Grounds Residency Divorce Laws Mediation/Counseling Divorce Process Legal Separation Annulments Property Division Alimony Child Custody Child Support Divorce Forms Process Service Grandparent Rights Forum Maryland Products Divorce by County People getting divorced often need more cash than is readily available.

There may be one-time expenses related to the transition, such as making a down payment on a new house or paying attorneys fees.

There also may be an ongoing need for more cash flow after the divorce than ones salary, child support, and/or alimony can provide.

The lack of ready money can delay or even aggravate the negotiations over the divorce settlement which may only further reduce available cash.

As it happens, there are at least four ways to access retirement savings prior to age 59 without being subject to the 10% penalty tax for early withdrawal.

One method is available only to divorcing couples while the other three can be used by anyone.

Yet some divorcing couples have plenty of money in the form of retirement assets -- which could solve these problems. People think retirement assets are only for retirement.

In my practice as a certified divorce planner, I often find that people do not even consider using these assets for pre-retirement needs. And yet there is no objective reason why that must be the case. People believe mistakenly -- that taking distributions from retirement assets prior to age 59 must result in a 10% penalty tax to Uncle Sam.


 
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06-Aug-2015 05:58