Raiding Your 401(K) Can Be a Divorce Disaster
according to Stacy Francis, CFP®, CDFA®, CES™, President & CEO Francis Financial Inc.
"Many divorcing spouses find themselves strapped for money to pay for
mounting legal bills and the higher costs of supporting two households,
rather than one. With bank accounts and brokerage accounts drained to
zero, some look to tap their employer 401(k)s or IRAs for quick cash to
cover these costs."Early withdrawals from a 401(k) or IRA can be a financial and tax disaster.
You will owe income taxes on the withdrawal and a 10% penalty if younger than 59 1/2. think about the impact of paying federal, state, local, Medicare and Social Security taxes on the withdrawal plus 10% of the total amount withdrawn.
Instead consider a loan against your 401(k). IRAs do not allow loans.
Interest rates vary by plan, with the "most common is prime rate plus 1%, which is very low, and much cheaper than credit card rates."
401(k) loans typically need to be repaid within five years, usually, directly out of your paycheck.
Read the full article at:
https://www.kiplinger.com/article/retirement/T001-C032-S014-raiding-your-401-k-can-be-a-divorce-disaster.html
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