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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4015
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I live in MN, divorced my wife (bread-winner, I have zero income).

Resolved Question:

I live in MN, divorced my wife (bread-winner, I have zero income). I was just sent paperwork for how I want payment. I will write a lot, to make sure I"m specific enough, b/c I'm clueless how to proceed from here. I want to cash these out, not roll them over in any way.

1) 403(b) $73,616
It states (other option was to roll-over) "I do not elect a direct roll-over of my lump sum payment, and I understand that payment will be made to me. I understand that Federal income tax will be withheld at the rate of 20%.

*I request the following State income tax withholding (check one):
___ ____________%
___ $___________fixed dollar
___ No State income tax withholding

The next one is a pension plan in the amount of $16,877.24

I am given the same options as far as how much I would like withheld, if any at all.

Do I, or do I just get the lump sum (minus 20% federal) and not pay MN state tax on the monies?

Thank you so much.

Chad
Submitted: 11 months ago.
Category: Tax
Expert:  Stephen G. replied 11 months ago.

Stephen G. :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G. :

First of all, I presume that under whatever written settlement agreement you had with your ex-wife, and / or with the advice of your attorney, you are permitted to withdraw the funds from your retirement plans. Absent that, you could be in a lot of trouble for doing this if you were still in the negotiating stage of a property settlement. That said,

Stephen G. :

I wouldn't recommend that you not have your MN income taxes withheld, or you are going to have to come up with the funds when you file your tax return and if you make the withdrawals now, you would need to make an estimated tax payment by 9/15/2013 anyway.

Stephen G. :

Depending upon what your actual deductions are, the MN taxes due on the retirement distributions will range between 5% - 7%, so I would recommend that you have 6 1/2 % withheld for MN taxes.

Stephen G. :

Now in the interest of saving some taxes, is there anyway that you can defer taking any part of the distribution until next January (2014), thereby pushing it into another tax year?

Stephen G. :

Also, is you divorce final so that you will be filing your tax returns as "Single" for 2013?

Customer:

The divorce is finalized, so I am completely entitled and I'm filling out paperwork from her employer.

Stephen G. :

Oh, OK, so its your share of her retirement funds.

Customer:

yes

Customer:

and I have to take it as a lump.

Customer:

can't push it off.

Customer:

so you think I would be safe @ 6.5%

Stephen G. :

Well, you could put it off if you rolled some of it over.

Stephen G. :

6.5% for MN, yes.

Stephen G. :

Are you going to receive Alimony?

Customer:

Just child support.

Stephen G. :

So the children will live with you & what about the house if there is one?

Customer:

I'm the primary, living in a house that's in my parents name.

Stephen G. :

OK, so you won't have a mortgage interest deduction, correct?

Customer:

no.

Stephen G. :

no you won't have that deduction?

Customer:

I will not.

Stephen G. :

She will be entitled to claim the children as exemptions?

Customer:

yes.

Customer:

if I were to roll-over let's say half of the total, how much (generally speaking) would i be saving in taxes?

Stephen G. :

You still may be able to file as "Head of Household" even if you can't claim the children as exemptions; you'll want to check that out at tax time as that would get you the lowest tax.

Stephen G. :

Well, assuming no other income?

Customer:

likely not until next year

Stephen G. :

How old are you?

Customer:

42

Stephen G. :

I need to check on something first, but if you roll it over & then withdraw it next year, you may be subject to a 10% penalty, which would negate the savings. So, hold on a minute while I look something up.

Customer:

I was a stay-at-home father for our two girls (doubt it matters, just an fyi), and am taking the real estate exam, but likely won't have much/if any income until next year.

Customer:

okay

Stephen G. :

OK, no problem, I understand.

Stephen G. :

Are you receiving these distributions as part of a "Qualified Domestic Relations Order" which is part of your divorce settlement?

Customer:

yes

Stephen G. :

OK, then the rollover & subsequent withdrawal won't work as you aren't 59 1/2.

Customer:

ok

Customer:

so I will or won't be charged the additional 10% fee, do you know for sure?

Stephen G. :

Since the withdrawal is part of a QDRO, you shouldn't be subject to the penalty;

Customer:

ok, cool.

Customer:

You have been a TREMENDOUS help Stephen, thank you so much.

Stephen G. :

Of course, if you could afford to roll any of it over, you could defer the tax & may be able to qualify for another exception to the 10% penalty later on.

Stephen G. :

There are like 16 exceptions, with 2 or 3 that could possibly apply to you.

Customer:

but aren't the only ways around that 59.5 yrs and disability?

Stephen G. :

NO.

Customer:

I am partially disabled, but not completely.

Stephen G. :

Like I said there are as many as 16 exceptions.

Customer:

do you recommend I roll some over?

Stephen G. :

So you aren't receiving Social Security Disability.

Customer:

no

Customer:

injury occurred in graduate school, and according to soc.sec. I haven't worked enough. they don't count college as work, in fact it works AGAINST me!

Stephen G. :

If you can, there are benefits to leaving the money in a retirement fund and investing it, rather than doing that outside of the retirement fund umbrella.

Stephen G. :

What about your ex-wife's social security? How long were you married?

Customer:

14 yrs.

Stephen G. :

Once you are married for 10 years, a spouse or ex-spouse can collect under "her" earnings record; it has no affect on her. Some ex-husbands have 2 or 3 ex-wives collecting full benefits off the ex-husbands earnings record.

Customer:

whaaaaaaat, are you serious...that's crazy.

Customer:

how do I go about checking into that Stephen?

Stephen G. :

So, in your case, it would depend on the extent of your disability; social security doesn't recognize partial disability;

Customer:

correct.

Stephen G. :

Take your wife's Social Security number; a copy of your marriage certificate, & go in person to your local social security office; it helps to make an appointment first.

Customer:

ok.

Stephen G. :

Of course, if you don't remarry, you can collect retirement income based upon her record also.

Customer:

am I just trying to collect 'general' soc. sec. or some specialized branch?

Stephen G. :

If you were to remarry, then you would be looking at your own record & your new wife's record; there's no 10year requirement for current spouses.

Customer:

I had no clue I could do that.

Stephen G. :

The only social security you could collect would be disability or SSI (Supplemental Security Income) for low income or practically no income disability; which is much lower than the regular SSDI which in essence equals a full retirement benefit as if you were at full retirement age.

Stephen G. :

That's why they pay us the big bucks, CPAs are a wealth of knowledge. Don't leave home without one. >00<

Customer:

lol

Stephen G. :

I'll leave my contact information here in case you want to get in touch with me again;

Stephen G. :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Customer:

thank you so much Stephen.

Stephen G. :

Thanks for using JustAnswer.com

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4015
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and other Tax Specialists are ready to help you

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