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lolitanc · Jan 7, 2008, 06:42 AM

Ok you Geniuses (I say this with the greatest respect!) I've been reading your wonderful advice and I have decided to make a loan against my 401K instead of cashing it out, but (and I know you are going to laugh) How does one go about this. I mean who do I contact, a bank or who. This is not a 401K from my PRESENT employer, it is a 401k that my Ex is signing out to me. I have never done this kind of thing, my ex, I must admit, was excellent for keeping up with all administrative matters. Please HELP!

Dr1757 · Jan 7, 2008, 07:38 AM

Your ex is the only that can borrow money from that particular 401k, but the only way to know for sure is to talk to folks where the 401k is held.

twinkiedooter · Jan 7, 2008, 07:39 AM

Whoever the ex is signing out to you, they would be the ones to contact regarding taking out a loan or cashing it out.

ScottGem · Jan 7, 2008, 08:27 AM

Ok, this is a different situation entirely. You are probably being awarded the 401K as part of the divorce. I'm not sure if this amount would be subject to the same taxes and penalties as a regular in service withdrawal.

I'm going to move this to the taxes forum to get our tax guru's take on it.

AtlantaTaxExpert · Jan 7, 2008, 11:57 AM

Good news: A divorce-driven 401K distribution is QDRO (Qualified Domestic Relations Order), and that qualifies as an exception to the 10% Early Withdrawal Penalty. You will have to file Form 5329 to claim the exception, but all you will have to pay is the normal state and federal income taxes.

You also have the option of rolling that 401K distribution into a rollover IRA. However, once you do that, you cannot later change your mind and draw it out and still be exempt from 10% Early Withdrawal Penalty.

What EXACTLY are you planning to use this money for?

ScottGem · Jan 7, 2008, 12:37 PM

I knew it was something that started with a Q ;)

Let me ask one more question for loli. Can she roll over only part of the QDRO or must she roll over the whole thing to avoid the taxes?

lolitanc · Jan 7, 2008, 05:02 PM

Well, apparently we have to go to court or at least our lawyers. He is giving me one of his 401 k's as part of the divorce. After that, based on what you hae recommended to other posters, I will borrow against it instead of cashing it out. That is what you recommend, don't you.
Thank you so much for all your advice. Not to sound like an idiot or anything but I don't know anything of these matters, should I just let a lawyer handle it all? (I speak 5 languages. Talk to me about politics, history, art, I am even thinking about taking auto mechanics but this area paralizes me! Thank you!

AtlantaTaxExpert · Jan 7, 2008, 08:08 PM

If the 401K remains a 401K, you can borrow against it.

If you roll it over into an IRA, you CANNOT borrow against an IRA.

Since you are exempt from paying the 10% penalty, it may be better to just take the money.

ScottGem · Jan 7, 2008, 08:18 PM

Normally, we do recommend that you take a loan rather than a withdrawal from a 401k. But you don't have a 401K. You are going to get a penalty free distribution from your ex's 401K. You can't take a loan against that.

AtlantaTaxExpert · Jan 7, 2008, 08:50 PM

I thought I said that! :-)