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zanec · Jan 24, 2011, 08:45 AM

My wife and I are divorcing and she wanted to give me some of her 401k from work to help me invest into buying a home. Is that legal and can we do that?

smoothy · Jan 24, 2011, 08:48 AM

The tax hit and penalties are going to be high for early withdrawl of that money.

zanec · Jan 24, 2011, 08:54 AM

Even if it's invested into real estate?

smoothy · Jan 24, 2011, 08:57 AM

Originally Posted by zanec

Even if it's invested into real estate?

Doesn't matter... the rules (actually laws) for withdrawl and/or investment 401K money are VERY specific.

ebaines · Jan 24, 2011, 09:45 AM

Assuming that the transfer of your wife's 401(k) to you is properly defined by a Qualified Domestic Relations Order (QDRO) from the divorce court, you wife pays no penalties or taxes in transferring a portion of the account to you.

If you receive the transfer in cash, and do not roll it to a tax-sheltered account (like an IRA), you will pay income tax on it. But NOT the 10% early withdrawal penalty.

BTW - generally upon divorce the value of the 401(k) vlaue that was accumulated during marriage is splt between the two parties. In community property states the account gets split down the middle. So while you wrote that your wife is wanting to give you some of her account, by rights you should be getting up to half of it - it has nothing to do with her "wanting " to give it to you.

Here is a helpful article for you: 401(k) and Divorce