Divorce and borrowing against 401K

[RickW2]

I went through a divorce this year and had to borrow against my 401K for down payment on a primary home. I also had to pay my ex-wife a portion of that retirement fund. After going through turbo tax it shows a rather elivated amount owed to the federal gov. - Help!

[SusanY1 · Accepted solution]

If you took a distribution, rather than a loan (and received Form 1099-R), you will pay taxes on the amount that you received and used for your down payment on your home, as there is no exception for taxes or penalty for a withdrawal from a 401(k) for a home purchase.

Payments made to an ex-spouse under a Qualified Domestic Relations Order (QRDO) are not taxable to you and should not be included on your Form 1099-R. 

Your ex-spouse should receive her own Form 1099-R for the amount that she received.  If you believe that her amount is included on your form, you should contact your plan sponsor for a corrected form.

If you directly paid your spouse from an amount that you received, this is not a qualified distribution and is not deductible on your tax return in most cases unless it qualifies as alimony under your divorce decree.