12 Dec What should I do with my ex’s 401(k) after divorce?

Q. My divorce will be final early next year. I will receive a portion of my ex’s 401(k) plan. How do I decide what to do with it?
— Single soon

A. We’re glad you’re asking.

Let’s start with how you would be receiving the money.

A 401(k) plan requires a Qualified Domestic Relations Order — known as a QDRO — to divide the marital portion due to divorce, said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown.

“Some plans allow you to remain in the plan and have your own account,” she said. “It may have lower fees, and is creditor protected, but has limited investment options.”

An alternative would be to roll it over to an IRA in your name.

“This allows more investment options and has more flexibility. You can combine it with an existing IRA that you might have in your name. Both occur tax-free,” she said.

You could also take the money in cash, but the entire amount would be taxable at ordinary income tax rates, plus a 10% penalty if you are less than 59 ½.

“There is a provision in the tax code that allows you to withdraw some cash at the time of the divorce should you need for housing, bills, debt, etc., and you can avoid the 10% penalty,” she said.

But taking it in cash isn’t usually a great idea.

“This money is intended for your retirement so growing this into a tax-deferred account will better support your eventual retirement income,” D’Agostini said. “Moving it into an account in your name will allow you to now direct the account for your needs and to adjust to an investment strategy that best suits you.”

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This story was originally published in December 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.