Scenario: Divorced spouse received her ex's 401K in the divorce settlement. CPA recommends rolling it over into her own IRA. She is not currently employed due to a disability.

1. Can you do this without penalty?

2. Can an unemployed person even start an IRA?

Thanks in advance.

This post was edited on 12/14/23 at 10:47 am

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Posted by TDTOM

Member since Jan 2021

24808 posts

Posted on 12/14/23 at 10:51 am to Jim Rockford

quote:
1. Can you do this without penalty?

Yes

quote:
2. Can an unemployed person even start an IRA?

Yes, but she cannot contribute to it.

Quick note, she can take money out before rolling it over and she will not have to pay the 10% penalty if she is under 59.5. She will still be on the hook for taxes though.

This post was edited on 12/14/23 at 10:54 am

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Posted by Jim Rockford

Member since May 2011

104406 posts

Posted on 12/14/23 at 10:52 am to TDTOM

Thanks for that information

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Posted by RoyalWe

Prairieville, LA

Member since Mar 2018

4326 posts

Posted on 12/14/23 at 11:47 am to Jim Rockford

I believe there's a time limit for rolling it into an IRA, so don't wait too long.

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Posted by TorchtheFlyingTiger

1st coast

Member since Jan 2008

2920 posts

Posted on 12/14/23 at 11:49 am to TDTOM

quote:
she can take money out before rolling it over and she will not have to pay the 10% penalty if she is under 59.5

I didnt know that. How so?

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Posted by TDTOM

Member since Jan 2021

24808 posts

Posted on 12/14/23 at 12:11 pm to TorchtheFlyingTiger

Through the QDRO.

quote:
Can you withdraw from 401k without penalty in a divorce?

Generally, taking money from a 401(k) before 59 ½ would have a 10% penalty fee. But, early withdrawals can be made as part of a divorce settlement without this fee by following specific rules, including using a Qualified Domestic Relations Order (read more below).Jun 27, 2023

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Posted by GrizzlyAlloy