The flexibility with establishing your own 401(k) and IRAs is that you could take a loan from the 401(k) of up to $50,000 (assuming you rolled over at least $100,000 into the 401(k)) and you also could begin taking substantially equal periodic payments (SEPP) from one IRA account if needed. If you began taking $36,000 from the IRA then you would need at least $650,000 in that IRA (based on current interest rates) to meet the SEPP requirements. The other $145,000 ($895,000 - $100,000 - $650,000 = $145,000) could be invested in a separate IRA account that will continue to grow tax-deferred and would be accessible if emergency funds are needed. However, you would have to pay the 10% penalty if funds are withdrawn prior to age 59 1/2 unless an exception is available (to pay college costs, or starting another SEPP). Using these strategies would result in you paying less taxes than taking a lump sum distribution of $475,000 from the 401(k) in one year to pay off the mortgage. However, if your ex-husband's 401(k) plan permits you to leave the funds in the plan and access them at any time in any amounts then this option would provide the most flexibilty. One factor that needs to be considered with this option is the menu of investment vehicles in his plan that you have to choose from.
If you don't have any employees in your business then establishing a 401(k) (sometimes referred to as a Uni-401(k), or Solo 401(k) for the owner only) is not complex nor expensive. Usually the annual fee for the custodian/trustee is approximately $100 or less. Once your assets exceed $250,000 you will have to have your accountant prepare an annual Form 5500-EZ for the plan. This should cost $100 - $250. In addition, the 401(k) plan will permit you to contribute more than a SEP based on your current business income. These types of plans can be established directly with no-load mutual fund families, discount brokers, full service brokers, and some insurance agents.
If you have any eligible employees (employees who work more than 1,000 hours a year) then setting up a 401(k) is more complex and more expensive. First, you may have to make some type of contribution for employees if you make or receive a contribution for yourself (depending on plan design such as traditional or safe harbor 401(k)). The fee to have the plan document prepared would be approximately $500 - $1,000 and the annual fee to administer the plan will be approximately $500 - $1,500 depending on the funding arrangement, the number of employees, and who is providing the annual administration (services such as nondiscrimination testing, top heavy testing, preparation of the 5500, SARs, and other compliance requirements). You will also need a fidelity bond for this plan which may cost approximately $125 a year. The investments could be made with the same types of advisors who could handle a solo 401(k) but generally you would use an outside party (usually referred to as a third party administrator) to perform the annual administration.