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It also gives your former spouse an opportunity to choose from a wider array of investment choices, and to exercise more self-direction in account management.
If Both Spouses Have 401k Accounts If you each have your own 401k, the division will depend on the dynamics between the two of you, says Johnson, as well as your account balances.
"Except in a few extreme situations, liquidating is not a good idea," says Johnson.
But if you are the one trying to get part of your spouse's 401k, and you need the cash to pay off credit card debt or to maintain a separate household while your divorce is pending, this may be the least ugly of an unattractive array of options.
This option is generally available only if you meet the rather complex legal requirement to permit such a distribution.
Your two main choices are a SEP-IRA or a Solo 401K. Simplified Employee Pension Individual Retirement Arrangements, or SEP-IRAs allow a sole proprietor to shelter 20% (actually 18.6%, at least until you max out your payroll tax) of your business profit up to ,000 per year (,000 if over 50).
If it is your account, and part of it is liquidated for your spouse, you might want to make certain that your spouse is liable for the tax consequences.
"Your agreement needs to be clearly drawn," says Benna, "so that the liability is borne by the spouse receiving the benefits." Option 4: Roll the portion of the 401k awarded to the ex-spouse into an IRA.
When researching your plan's guidelines, amass all the literature you can, and read it carefully. Give both sets of lawyers copies of all guidelines and documents you receive from the plan administrator.
Make it your job to ensure that both sets of attorneys are familiar with your plan's guidelines.