How to Cash Out a 401(k) Due to Divorce

by Michael Keenan ; Updated July 27, 2017
All 401(k) plan withdrawals are taxable.

In the event of a divorce, a courts typically consider a 401(k) plan to be marital property, according to MSN Money. As a result, a qualified domestic-relations order can require you to divide a 401(k) plan with your spouse. Usually, the Internal Revenue Service requires that you pay an early withdrawal penalty of 10 percent when you take out money from your 401(k) plan before age 59 1/2, but if a court awards you part of your ex's 401(k) plan, you can withdraw the money without paying the 10 percent penalty.

Step 1

Obtain a qualified domestic-relations order from the divorce court that specifies your name and address, your ex's name and mailing address, the retirement accounts to be split, the amount or percentage you are entitled to and the number of payments the qualified domestic relations order covers.

Step 2

Request a distribution from your ex's 401(k) plan in the amount specified by the qualified domestic relations order by contacting the 401(k) plan administrator.

Step 3

Report the amount of the withdrawal as a taxable pension and annuity withdrawal on your federal income tax return using form 1040. This amount will be included in your taxable income.

Step 4

Complete form 5329 to document that your reason for the withdrawal is a qualified domestic relations order, to avoid the 10 percent early withdrawal penalty. On the form, write "06" to indicate the withdrawal is due to a qualified domestic relations order. File this with your 1040.

Tips

  • If you do not need the money immediately, you can preserve the tax-deferred status of the money coming out of the 401(k) plan by moving into a traditional IRA within 60 days of receiving it. If you do this, the money will be treated as a rollover rather than a distribution.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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