livesoft wrote:You may owe not only taxes, but also a $2500 penalty for cashing in the $25,000 instead of putting it into an IRA if you are younger than age 59.5.
When a divorce settlement shifts property from one spouse to another, the recipient doesn't pay tax on that transfer.
If a payment qualifies as alimony under federal tax rules, the paying spouse deducts it and the receiving spouse reports it as income. If a payment is child support, it is not deductible by the payor and is not taxable income to the payee. If a payment is property settlement, there is no immediate tax consequence on the payment. If the payment isn't money, though, there may be a capital gains tax later when the property is sold.
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