After a divorce, you may need to liquidate certain assets to support yourself. This is normal, and many people have to do so. For example, if you were given a share of retirement assets, you may be able to access the money from the fund before it reaches maturity.
Many people do what they can to avoid taking money from retirement funds until after they reach age 59. Why? They think that they'll be charged 10 percent by the Internal Revenue Service. In many cases, that is true, especially if the individuals don't qualify for relief from the fine.
The good news is that people like you have options when it comes to cashing out your retirement accounts and getting cash. There are several ways to access the funds without facing a penalty tax. One of these methods is available to those going through a divorce.
How can you take out funds from a retirement account without a penalty?
One way is through a QDRO transfer. A Qualified Domestic Relations Order normally allows money to be transferred from one person's 401(k) to another spouse's IRA. However, it's also possible to have that money transferred directly to a spouse without being penalized by a 10 percent tax. What's great about this is that the QDRO can also split the funds, so some is paid out in a lump sum while other funds go back into an IRA.
Keep in mind that this only works if a spouse has a 401(k) that is being divided, not if they're having a Roth IRA divided due to legal restraints. Another thing to remember is that you can avoid the tax on the funds, but you will still need to pay taxes on the income when you receive it. There is no way to get out of the taxes that will apply.
If you have retirement funds to divide, a QDRO can be a good option for your situation. It will give you a chance to get a lump-sum payment that helps you guarantee that you have enough money to put down a down payment on a new home or take care of other expenses. This order allows you to avoid the 10 percent penalty that most people would face for taking out their retirement funds early. Your attorney can help you get the QDRO that you need to obtain the funds you need without accruing penalties.