Domestic abuse victim withdrawal

[CarolynGG]

Hi. I need to take a 401k withdrawal under the domestic abuse victim option. I am not sure if I will be divorced by the end of 2025 tax season and still may need to file 2025 taxes as married filing jointly. I do not want my husband to know I took this type of withdrawal, he will be furious. Will this be coded as a regular early withdrawal from my 401k on the 1099r or will it be coded as something different that he can look up the code and see it is domestic violence related? 

I am not looking to be judged. I just need to keep this info away from him because I cannot handle him blowing up about it.  Thank you in advance. 

[rjs]

The 1099-R will not show the reason for the distribution. It will just show an early distribution. But in order to avoid paying the 10% penalty for an early distribution you would have to include Form 5329 in your tax return, and that form would have to have a code indicating the reason for the exception to the penalty. Code 22 indicates a distribution to a victim of domestic abuse. Maybe you could find another exception that you could legitimately use to avoid the penalty. You might want to consult a local tax professional for advice.

[rjs]

If your divorce is not final by the end of the year, you are not required to file as married filing separately. You would probably pay more tax, but you would avoid having to deal with your husband to file your tax return. If you have a child living with you, and your husband does not live with you for the last 6 months of the year, you could file as head of household, which would reduce the amount of tax you have to pay.

In some states you can get a legal separation that is not a divorce, but allows you to file your tax return as if you are not married.

Talk to your divorce lawyer and a tax professional about the possible arrangements for filing your 2025 tax return if you are not divorced by the end of the year. If the lawyer suggests a legal separation, check with a tax professional or a tax lawyer to make sure it will satisfy IRS requirements.

[CarolynGG]

Thank you for this information. Will this 5329 come from my retirement plan or do I need to download from the web and complete myself? Do I or my spouse need to sign the 5329? If a signature is not required, I can just slip it in the tax return envelope after I sign the tax return. 

[rjs]

Form 5329 is an IRS form that you fill out as part of your federal tax return. It does not have to be signed separately, but it has to be included with your tax return. If you are filing by mail, forms are supposed to be attached in a specific sequence, but it would probably okay if you put it in the envelope separately if you think you would be able to do that without your husband noticing.

One possible problem, if the Form 5329 is not attached properly, is that it could be overlooked by the person who takes your tax return out of the envelope at the IRS, or by the person who keys it into their computer system. If that happens you will get a notice from the IRS saying that you have to pay the 10% penalty. The notice would be mailed to the address on the tax return. There might be two separate notices, one to you and one to your husband.

All of this is assuming that you file the tax return by mail. If you e-file, the exception to the penalty has to be entered into the software that you use. It is also assuming that the penalty exception applies to the entire amount that you withdrew. If the exception only applies to part of the distribution, additional entries are required on the tax return.

This whole plan seems a little dicey to me. I again suggest that you talk to your divorce lawyer about making other arrangements for filing your tax return if you are not divorced by the end of the year. Your lawyer should be able to work out a plan with your husband's lawyer that would give you privacy and safety.

I want to make sure it's clear to you that you do not need the domestic abuse exception in order to take the money out of your 401(k). Subject to the rules of your particular 401(k) plan, you can take money out at any time, without giving a reason. But if you are under age 59½ you have to pay an additional 10% tax on the distribution. The exception lets you avoid the additional 10% tax.

That means that you have one other alternative, which is to just pay the 10% penalty and consider it a cost of getting divorced. Then there would be nothing on your 1099-R or your tax return to suggest that the 401(k) withdrawal was anything other than an early withdrawal.