Vegas stated
I'd just like to say that you don't have to pay the 10% early withdrawl tax when you cash out a 401k from a divorce.
If a 401K is divided pursuint to a court order (QDRO) there is no penalty to the owner of the 401K.
If the receiver transfers their portion into a qualified retirement account, they won't pay a penalty. If the receiver is not yet 59 1/2 years old and they take their portion in cash there will be a 10% penalty withheld before distribution. And at any age, income tax will be owed on that cash distribution, the amount based on the income tax bracket it puts you in.
If the funds in a 401K are divided by the parties' agreement, without a QDRO, there will be penalities withheld on the withdrawal.
Anyone considering a division of 401K should get proper tax advice from a professional. Edited to clarify that income tax is owed on a CASH distrbution.
[This message edited by Ratpicker at 9:48 AM, October 21st (Wednesday)]
