Magazine article Medical Economics

Money Management Q&A

Magazine article Medical Economics

Money Management Q&A

Article excerpt

Social Security spousal benefits

Q: I am recently divorced after 25 years of marriage, and my ex-wife is collecting a Social Security spousal benefit If I marry again, will that affect my new wife's eligibility to collect benefits?

A: Your ex-wife can collect Social Security spousal benefits as long as you were married for at least 10 years, she is now unmarried, she is 62 years old or older, and the benefits she is entitled to receive on her own work record are less than the benefits she is receiving based on your work record. The amount of benefits your divorced spouse receives has no effect on the level of benefits you or a future spouse may receive.

DON'T USE RETIREMENT FUNDSTO PAY OFF MORTGAGE

Q: I'm worried I might lose my job soon and would like to pay off my mortgage. Should I use money from my 40l(k) account or IRA to do that?

A: We discourage clients from taking any early withdrawals from retirement accounts, because it is very expensive to do so and it will reverse the retirement savings process. The combination of the income tax and early withdrawal penalty could erode up to half of any withdrawal.

Moreover, you may not even be able to withdraw money from your 401 (k) at work to pay off your mortgage because you are only allowed to withdraw money from a 401 (k) plan for certain hardships outlined in the plan. If you are allowed to withdraw the money, then you would have to pay income tax on the withdrawal. Depending on how much you withdraw and how much other income you have, the tax could range from 10% to 35%. You also would have to pay an additional 10% penalty if you are under age 59 1/2.

You can take money out of your IRA, but again you would have to pay the tax plus a 10% penalty if you are not yet age 59 1/2. An exception to the 10% penalty is if you use the money to buy your first primary residence and have not owned a home for 2 previous years. But you would not qualify for that exception because you already own the home. …

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