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connie121655 · Sep 22, 2007, 10:35 AM

I will be divorcing my husband of 27 years. It will not be finalized until April 2008. In the divorce I got a $670,000.00 settlement from his 401k. It was rolled over to a new account. I am going to pull some money out. I don't have to pay the early withdrawl penalty. My question is. When I pull the money out it will be taxed between 20-25%. Will I still have to pay taxes at the end of the year? And is spousal support considered taxable? I do not have any other income besides spousal support.

ScottGem · Sep 22, 2007, 10:46 AM

You need to consult your divorce attorney or accountant on this. If you received a payout as part of a divorce settlement, the taxes and any penalties are paid by your husband. The settlement you received is probably not tax deferred money any longer. Your divorce atty can explain to you more fully how this was handled.

AtlantaTaxExpert · Sep 22, 2007, 01:10 PM

I doubt that the divorce attorney knows, but the tax consultant he will use will know what to do.

ScottGem · Sep 22, 2007, 01:50 PM

Originally Posted by AtlantaTaxExpert

I doubt that the divorce attorney knows, but the tax consultant he will use will know what to do.

Yep, I was assuming he would be using one. But was I correct in thinking that the amount would not be tax deferred monies any longer. That the taxes and penalties would be paid by the owner of the account.

AtlantaTaxExpert · Sep 22, 2007, 04:14 PM

Connie was not clear whether the new account was a rollover IRA or not, but I suspect NOT. If so, the tax issues were resolved when that new account was set up. Who actually PAYS the taxes depends on how the divorce agreement is structured.

Further, the law has changed. I am not fully up on the changes, but I believe that qualified pensions CAN be transferred to someone else under a Qualified Domestic Relations Order (QDRO).

connie121655 · Sep 22, 2007, 05:35 PM

Originally Posted by AtlantaTaxExpert

Connie was not clear whether the new account was a rollover IRA or not, but I suspect NOT. If so, the tax issues were resolved when that new account was set up. Who actually PAYS the taxes depends on how the divorce agreement is structured.

Further, the law has changed. I am not fully up on the changes, but I believe that qualified pensions CAN be transferred to someone else under a Qualified Domestic Relations Order (QDRO).

In my question it will be a QDRO. The money is tax deferred. I know I will have to pay taxes when I pull the money out of 401k. The taxes are my responsibility. My question is Will I have to pay taxes on the money at the end of the year if I have taxes held out when I take the money out of 401k. Also is spousal support considered taxable income? Thanks for your help

ScottGem · Sep 22, 2007, 07:26 PM

Ok, Any taxes you owe will be based on total annual income. What will be withheld is the same as witholding from your salary. When you do your taxes, your actual tax liability is calculated and if your withholding is greater you get a refund, otherwise you have to pay. I know alimony is taxable, not sure about "spousal support".

AtlantaTaxExpert · Sep 25, 2007, 07:38 AM

Spousal support is another word for alimony.

It is taxable to the recipient and tax deductible to the payor as an adjustment to income on Form 1040.