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My girlfriend recently divorced and as part of the divorce settlement she will receive 60%of her ex-husbands 401k which will amount to approx $46,000. If she keeps a portion of this or all of it what percent tax and penalty will she she have to pay?? If she puts it intoan existing 401K with her current employer does she pay any taxes on it?? What is the bestscenario for handling this lump sum of money....she wants my advice but I have no ideawhat to tell her. Does she pay down debt with a portion of it?? Thanks in advance!!
Optional Information: Country relating to Question: United States State (if USA): Pennsylvania Already Tried: Just searching the web....
Hi, Bob, and Welcome to JustAnswerMy name isXXXXX am a Licensed, practicing Pennsylvania Attorney and would be glad to assist you, Please give me the following information,
1. How old is your girlfriend ? 2. Is she certain that her former husband's 401k plan Administrator is going to send her a check for the proceeds ? (Sometimes, in divorce situations, the Administrator of the plan waits for instructions from the former spouse as to where to send the funds which is usually to another retirement or pension plan) 3. When your girlfriend has her income tax returns prepared next April for the 2012 Tax year, will she itemize deductions, or take the standard deduction ? Thank you and I look forward to your reply, ANDREA
Sandy just turned 48.....and yes she will be receiving a check from the administrator of her former husbands 401k administrator. She will most likely take the standard deduction and not itemize.
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I would like to thank my colleague, PhillipsEsq, for the courtesy and assistance she gave me, and she was correct in everything she said.
I apologize for any delay, but there were several things I wanted to double check, including any exceptions your girlfriend might fall under, before I got back to you, so please forgive me,
Any distribution made before the individual reaches the age of 5 9 ½ is taxable at regular income tax rates and the tax rate, of course would depend on the individual's income tax bracket. In addition, a penalty in the amount of 10% of the amount of withdrawal is also assessed. The fund Administrator reports the amount of the distribution and to whom it was distributed. To the Internal Revenue Service, so the IRS will know that your girlfriend received a distribution from the Fund. The 10% penalty will be waived in certain cases, but the income tax will still have to be paid on the amount of the distribution. The exceptions are as follows:
If the distribution is put into a new retirement plan.
Taxpayer is disabled or ailing and unfit to work before the age of 59.5 years,
If distribution is used for payment of the taxpayer's health insurance if they are unemployed for a period of 12 weeks.
The penalty is waived for the first $10,000 of the distribution for thetaxpayer, if they are a first time homebuyer'
Medical expenses exceed the taxpayer's adjusted gross income Depending on which income tax bracket your girlfriend is in, if she takes only the standard deduction, and does not fall into any of the exceptions l listed above, she will be required to pay a substantial amount of tax on the distribution. She will also be liable for the State income tax imposed by Pennsylvania.
The best thing your girlfiend can do. if she does not need the money is to "roll it over" into another 401k, or the one maintained by her employer. If this is done, there is neither a tax, nor a penalty due on any part of the amount Please be kind enough to rate my service to you as "Excellent", If you rate me at anything less than 3 stars, it will appear as a negative rating against my name,
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Thank you for allowing me to be of service,
ANDREA
Experience: 25 Yrs. Family Law, Estates, Real estate & Bus. Law, Criminal Defense, Immigration, Employment Law