You may feel prepared to deal with any topics that may come up as you enter into your property division proceedings in Hillsborough, yet their will inevitably be some issues that will arise that may catch you by surprise. One of these may be the fact that your ex-spouse’s 401k account is included as a marital asset. While an employer-sponsored retirement account is an asset arising solely through the employee’s effort, the contributions made to that account during a marriage come from funds considered to be marital income. For this reason, those contributions are subject to equitable division.
The question then becomes how to best handle your portion. In most cases, withdrawals made from a tax-deferred retirement savings account before you reach the age of retirement will net you a substantial tax penalty (which can be as much as 10% of the withdrawal amount). According to information shared by CNBC.com, however, you are allowed to make a withdrawal without incurring a penalty when such an account is subject to a Qualified Domestic Relations Order (a court order authorizing a plan sponsor to make payments to an alternate payee). You will still be required to pay income tax on whatever you do withdraw.
Before making the decision to take the money now, however, you should weigh it against the advantages of simply letting it rollover into your own retirement account. Doing so gives it the potential to grow further through investments and earned interest. If you are still several years away from retirement, that added income can be substantial. Yet if you truly need additional funds now (say, to secure housing or vocational training), the benefit of having the money now might be greater than any potential future gains.