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Received all the 401k, in a Divorce settlement. NEED LOTS OF ADVICE, ON HOW TO HANDLE THE TAXES!

Asked over 2 years ago - Lubbock, TX

I received all of our 401k in our divorce. All vested , value 180,000. I was a homemaker for 26yrs. NO income now! I want to buy a house valued at 130,000. I desperately need advice ASAP! I have already put a contract on this house! How do they figure the taxes on the amount you take out? Is there some secret formula? Where do you go for help? Am I making a huge mistake? Remember, I have no other way to survive, long term!!!

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Attorney answers (2)

Robert Scott Williams

Reputation Level 12

Answered over 2 years ago. Tax Lawyer in Tallahassee, FL.

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Generally, anything you take out of the 401(k) plan is taxable income to you. In addition, there is a 10% excise tax on anything you take out before retirement. Generally speaking using pension funds in this way is a mistake. Depending on your age, and ability to obtain financing, you may be able to take sums out of the 401(k) plan over your estimated life span, pay the taxes, and use the balance to pay the mortgage. This would enable you to avoid the 10% excise tax. Please speak with a tax person near you before you proceed. This could be a huge mistake.

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Mark L Rosenberg

Reputation Level 15

Answered over 2 years ago. Tax Lawyer in Bethesda, MD.

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This issue has some complexities because it depends upon how the funds were taken by you. Were they rolled over into a retirement account for you? If so, then they are still tax deferred at this time. If you are over 55, you may take such funds out of the retirement account with no penalty, but you still pay income tax on the amount taken out. I suggest that you have your accountant and your tax attorney review this carefully before making a decision about how to fund the purchase of the home.

Mark L. Rosenberg

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