Divorcing Couples Can Avoid the 10% Penalty on Retirement Fund Early Withdrawal
Often when couples divorce, there is a retirement fund that needs to be split. This can be an excellent source of money for a down payment on another house. However, normally these funds are subject to a 10% penalty tax by the IRS for "early distributions", if the funds are disbursed before the participant is 59 1/2 years old.
In a divorce situation, there is often the opportunity to withdraw money and avoid the 10% penalty. Let's say that Sarah and John are getting divorced, and Sarah is getting half of John's 401k which is worth $640,000. Sarah's half is worth $320,000. If Sarah needs to take $100,000 in cash for a down payment on a house, there is a special rule for divorcing people that enables her to take cash without having to pay the 10% penalty. In Sarah's case, it saved her $10,000 in penalty fees!
A Certified Real Estate Divorce Specialist or a Certified Financial Divorce Practitioner can help your client discover exactly how to take advantage of this opportunity. However, it is important to know that this opportunity to avoid the 10% penalty tax is only available before the money is transferred to another account, so your divorcing client needs to be aware of the opportunity before it is too late.
If there are no other assets and your divorcing client wants a down payment
for a house, this is a good source of funds to know about.
Real Estate Divorce Specialists
A Division of the Financial Divorce Association
Carol Ann Wilson, President
906 Cranberry Court, Longmont, CO 80503
Toll Free: 888-332-3342