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Investment Planning |
Divorce planning: raising cash after a break-up
There are over a million divorces every year in the U.S. After a divorce, the individuals who've split up may find they're cash poor. Attorney's fees, additional housing costs, and unexpected expenses may've taken a large bite out of your non-retirement savings, and you find the only assets left are your retirement plans. It's common knowledge that if you withdraw money from your 401(k) or IRA before age 59 1/2 you'll be hit with income taxes as well as penalties. If you're thinking about withdrawing money from an IRA or 401(k) plan before age 59 1/2 in order to tap into funds to pay for living expenses, consider annuitizing your retirement account.
When you annuitize a retirement account, you take substantially equal payments for the longer of five years or the number of years until age 59 1/2. You'll avoid early withdrawal penalties on the payout. Annuitizing your IRA avoids the 10- percent early withdrawal penalty. But keep in mind that any money that you withdraw now won't be available to grow tax-deferred in your retirement plan. You won't be able to put this money back, either, when your cash flow does improve.
Another idea would be to take out a home equity loan to get cash. The interest portion of the loan payments will be tax-deductible.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.