Today, we are going to discuss whether you can actually pull money out of or out of a retirement account after it has been divided in your West Virginia divorce. We went over a little while back, the difference between a defined benefit and a defined contribution retirement. We’ve talked about qualified domestic relations orders as well. Those topics are related to this. However, now we are specifically focusing on the question as to whether you can divide money out of a retirement account and actually use it for anything you would like. Generally speaking, if the rules of the plan allow it, you are going to be able to do that. At the same time you need to be very careful when you do that.
For the most part, I suggest that people actually do not withdraw that money out of the retirement account because there can be huge consequences. For example, sometimes you’re allowed to access and withdraw money from a defined benefit retirement plan. You’re not going to get anywhere close to what you would otherwise get in the event that the person was going to be going to be getting a monthly payment for the rest of their life. It’s going to be a small amount compared to what they would get normally. Under just about every conceivable situation, you do not want to withdraw that money and use it like that.
The other kind is defined contribution plans like a 401K. This type of plan is where there’s a fixed amount. What is going to happen is that a fixed amount is going to be divided by a qualified domestic relations order or sometimes without that. No matter what, it’s going to be set aside and you can use that for whatever you want to use it for. However, here’s the problem with that. If you go and you use that, it’s going to be very problematic because you weren’t going to be paying probably a lot of taxes on that and you’re also going to be potentially paying penalties depending on how old you are. For the most part, I don’t recommend that people withdraw funds. I know there can be emergencies in many instances where you need to withdraw, but you need to do everything possible not to withdraw that money because you could be getting penalized. For example, when you’re at retirement age, you’re maybe going to be paying some taxes on it, but the taxes are probably going to be lower.
In addition to that, you’re not going to have to be paying any kind of penalty whatsoever for the most part if you’re at or near retirement age. You have to be very cautious about that. Generally speaking, if the plan allows it, you can withdraw money out of retirement accounts early and sometimes they can actually allow you to do it for certain specific purposes such as homes or other big purchases. Just remember, if you are just withdrawing money because you just want to use the money, it’s usually not advisable to do that for the most part.
