There are a few exceptions to the 10% penalty, including:
- If you are at least age 55 and you were separated from your spouse for at least three years before the year of distribution.
- If you are disabled.
- If you are taking the distribution to pay for certain medical expenses.
- If you are taking the distribution to pay for higher education expenses.
- If you are taking the distribution to avoid a hardship, such as a foreclosure or eviction.
If you meet one of these exceptions, you may be able to avoid the 10% penalty. However, you should consult with a tax advisor to make sure that you qualify for an exception.
In addition to the 10% penalty, you may also have to pay income taxes on the distribution. The amount of income tax that you owe will depend on your tax bracket.
It is important to weigh the pros and cons of taking a cash distribution from your former spouse's retirement plan before you make a decision. You should consult with a tax advisor to make sure that you understand the tax implications of taking a distribution.
Here is the relevant IRS code section:
* Section 72(t) of the Internal Revenue Code imposes a 10% early withdrawal penalty on distributions from retirement plans made before age 59½. There are some exceptions to this penalty, including those listed above.