1. Home
  2.  • 
  3. Asset Division
  4.  • Taking an early withdrawal from a 401(k)

Taking an early withdrawal from a 401(k)

Many of the people working their way through divorce proceedings in Ohio may look forward to the conclusion of the process with both anticipation and trepidation. They anticipate an end to the tension that may have contributed to the end of their marriages, yet they also may have concerns about their immediate financial well-being once their proceedings are over. 

This is especially true for those people that were not the primary income earners in their marital homes. Some might assume that alimony will provide them with the financial assistance they need. Yet according to DivorceMag.com, courts only award alimony in roughly one in every 10 divorce cases. Where, then, might a recent divorcee in need of an immediate infusion of funds find it? 

Cashing out a portion of a 401(k)

Past posts on this blog detailed the fact that retirement accounts often become subject to property division during a divorce. This includes 401(k) accounts, as the contributions made to them during a marriage come from marital income (thus making them marital assets). Typically cashing out any portion of a 401(k) prior to reaching the age of retirement will net an early withdrawal penalty (which often can be as much as 10% of the amount of the disbursement). However, the website SmartAsset.com reports that divorce is one of the few cases where early withdrawals are not subject to penalties. 

Weighing the pros and cons

Yet before one commits to doing this, they should first consider the pros and cons. While the money might help in securing housing or paying for vocational training or continuing one’s education, one does forego the potential growth that those funds may generate through investment returns and earned interest if left untouched until retiring. Plus one will still need to pay income tax on the disbursement.