Cashing out your portion of a 401(k)

As you look to the future set to accompany the conclusion of your divorce proceedings in Florida, you may suddenly develop concerns about immediate financial obligations (particularly if you were not the primary income earner in your marital home). You may need money to pay for housing, secure vocational training or go back to school.

Many come to us here at Sheldon E. Finman, PA believing that alimony will help meet these expenses. What they (and perhaps you) do not understand is that such a benefit is not automatic in a divorce case. Instead, a more immediate (and potentially more reliable) source of funds may be your ex-spouse’s 401(k).

Dealing with a 401(k) in a divorce

Because 401(k) contributions made during a marriage come from marital income, family courts view them as shared assets. Thus, you may receive an equitable portion of those contributions in your divorce proceedings. Typically the court mandates that your ex-spouse’s 401(k) plan provider roll your portion into your own account, but you do have the option to cash it out. Doing so results in an early withdrawal penalty in most circumstances, but according to information shared by CNBC.com, divorce is one of the few scenarios where early withdrawals are not penalized.

Weighing the pros and cons

This may indeed provide you with the funds you need, but cashing out also comes with drawbacks. In the immediate, you have to pay income tax on the disbursement. Looking long-term, by cashing out you forego any potential growth those funds may experience prior to your reaching retirement age. Depending on how far you are from retirement, that growth could be significant.

You can learn more about successfully managing property division proceedings by continuing to explore our site.