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Tax Surplus: 10 Moves That Can Cut Your 2025 Tax Bill Before the Year Ends

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Here Are Some Moves That Can Cut Your 2025 Tax Bill Before the Year Ends
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As the year winds down, many people start thinking about holiday plans, New Year’s resolutions, or how fast the months flew by. Few, however, pause to consider one of the most exciting things a savvy taxpayer can do: cut their tax bill before December 31st. Yes, it’s thrilling in its own way. The clock is ticking, and the right moves now can save hundreds or even thousands of dollars when tax season arrives. From strategic deductions to clever credits, let’s dive into ten smart, actionable ways to reduce your 2025 tax liability before the calendar flips.

1. Maximize Contributions To Your Retirement Accounts

One of the most powerful ways to reduce taxable income is to contribute more to retirement accounts like a 401(k) or IRA. Money you put in these accounts now often grows tax-deferred, meaning you won’t pay taxes on it until you withdraw it, usually in retirement. Many employers even allow last-minute contributions before the end of the year, so check your payroll options. It’s not just about saving for the future—it’s a clever, immediate tax strategy. Even small increases can add up and significantly lower your taxable income.

2. Take Advantage Of Health Savings Accounts

If you’re eligible for an HSA, contributing the maximum allowed can be a tax win on multiple fronts. Contributions are tax-deductible, the account grows tax-free, and withdrawals used for qualified medical expenses are also tax-free. It’s basically a triple tax advantage. Many people overlook HSAs simply because they focus on their main checking and savings accounts. Boosting contributions before year-end is like giving your tax return a supercharged boost.

3. Harvest Tax Losses In Your Investment Portfolio

Do you have investments that lost value this year? You can use a strategy called tax-loss harvesting to offset gains and reduce your taxable income. Selling losing investments and replacing them with similar ones allows you to claim a loss without derailing your long-term strategy. It’s a smart move for investors who want to optimize their portfolios while minimizing taxes. Careful planning here can reduce your bill significantly. Just be mindful of IRS rules regarding wash sales.

4. Boost Charitable Contributions

Generous giving can be rewarding in more ways than one. Donations to qualified charities are deductible, lowering your taxable income while supporting causes you care about. Consider making cash gifts or donating appreciated stocks for double benefits: avoiding capital gains and claiming a deduction. Don’t forget about itemizing deductions if that’s more beneficial than the standard deduction. Timing these contributions before the end of 2025 ensures you can take full advantage on this year’s taxes.

Here Are Some Moves That Can Cut Your 2025 Tax Bill Before the Year Ends
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5. Defer Income Until Next Year

If your employer or business allows it, deferring income to early 2026 can help you stay in a lower tax bracket for 2025. This is especially useful for bonuses or freelance payments you have control over. Delaying income reduces your taxable earnings for the current year without affecting your long-term plans. It requires coordination with your employer or clients, but the potential savings are substantial. Strategic income timing is a classic tool for proactive tax management.

6. Prepay Deductible Expenses

Paying certain deductible expenses early can provide an immediate tax advantage. Things like property taxes, mortgage interest, or state and local taxes can sometimes be paid before year-end to increase your itemized deductions. Planning these payments with a calendar ensures you capture the deduction in 2025 rather than the next year. While it requires some cash flow management, the payoff is worth it. Even a small bump in deductions can meaningfully reduce your overall tax burden.

7. Claim Education Credits

Education-related credits can directly reduce your tax bill if you or a dependent is enrolled in qualifying programs. Options like the American Opportunity Credit or the Lifetime Learning Credit can save hundreds, if not thousands, depending on your situation. Unlike deductions, these credits directly subtract from what you owe, not just your taxable income. Make sure tuition payments, fees, and qualifying expenses are tracked carefully. Filing early and double-checking eligibility can make these credits an unexpected boost.

8. Consider Energy-Efficient Home Upgrades

The government often rewards taxpayers for making energy-conscious improvements at home. Installing solar panels, energy-efficient windows, or heat pumps may qualify for tax credits. These credits reduce your tax bill dollar-for-dollar rather than just lowering taxable income. Timing upgrades before the year’s end ensures you can claim the credit on your 2025 taxes. It’s a win-win: you reduce your energy bills and your tax liability simultaneously.

9. Reevaluate Your Withholding

Even late in the year, adjusting withholding can impact your effective tax rate. Increasing your withholding on your paycheck before the end of 2025 can prevent underpayment penalties and reduce surprises at tax time. Conversely, if you’ve overpaid, you may have extra leverage to adjust contributions or maximize other deductions. Checking your W-4 and recalculating withholding is a quick, often overlooked way to optimize your tax situation. For regular wage earners, it’s one of the simplest yet most effective moves.

10. Review Business Deductions If You’re Self-Employed

Self-employed individuals have a unique opportunity to maximize deductions for 2025. Expenses like home office costs, business travel, software, and professional services can be written off. Making necessary purchases or prepaying certain expenses before year-end allows you to capture the deduction immediately. Tracking receipts meticulously ensures nothing slips through the cracks. Smart business expense management is a direct path to reducing your tax burden while maintaining smooth operations.

Take Action Now To Keep More Money

The end of the year isn’t just about wrapping gifts or planning vacations—it’s one of the last opportunities to make moves that directly impact your tax bill. From retirement contributions and HSAs to charitable donations and strategic income timing, these ten strategies empower you to control your 2025 tax situation. Some are simple tweaks, others require a bit more planning, but all can pay off in real savings. Taxes might feel unavoidable, but proactive planning turns them from a shock into a manageable, even strategic, element of your financial life.

Share your experiences, clever tips, or stories about cutting your own tax bill in the comments section below—we’d love to hear how you’ve outsmarted the system.

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10 Times a GoFundMe Campaign Led to Legal Trouble

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GoFundMe has changed how people ask for help. It’s easy to set up a campaign and share your story. But sometimes, things go wrong. Some campaigns end up in courtrooms instead of helping hands. If you’re thinking about starting a GoFundMe or donating to one, you need to know the risks. Here are ten real situations where a GoFundMe campaign led to legal trouble—and what you can learn from them.

1. The Homeless Veteran Hoax

A couple and a homeless veteran raised over $400,000 on GoFundMe. They claimed the money would help the veteran get back on his feet. But the story was fake. All three were charged with conspiracy and theft. The court ordered them to pay back the money. This case shows that lying on GoFundMe can lead to criminal charges. If you’re running a campaign, always tell the truth.

2. Misusing Funds for Personal Gain

A woman started a GoFundMe for her child’s medical bills. She raised thousands. But instead of paying for treatment, she spent the money on vacations and shopping. Donors found out and reported her. She was charged with fraud. If you collect money for a specific reason, use it for that reason. Misusing funds is illegal and can ruin your reputation.

3. Fake Illness Claims

Some people pretend to be sick to get donations. One man claimed he had cancer and raised money for treatment. He didn’t have cancer. When donors learned the truth, he was arrested for theft by deception. Lying about illness is not just unethical—it’s a crime. If you’re tempted to exaggerate, remember that donors can ask for proof.

4. Fundraising for Illegal Activities

A man set up a GoFundMe page to cover the costs of his legal defense after being charged with a crime. The campaign was shut down because it violated GoFundMe’s terms. In some cases, raising money for illegal activities can lead to more charges. If you’re not sure if your campaign is allowed, check the rules first. GoFundMe’s terms of service are clear about what’s not allowed.

5. Failing to Deliver Promised Rewards

Some campaigns offer rewards to donors. One person promised t-shirts and thank-you notes but never sent them. Donors sued for breach of contract. Even small promises can be legally binding. If you offer something, deliver it. Otherwise, you could end up in court.

6. Using Someone Else’s Story

A woman used photos and stories from another family’s tragedy to raise money. The real family found out and sued her for invasion of privacy and misrepresentation. She had to pay damages and return the money. Always get permission before sharing someone else’s story. Using someone’s pain for profit is both wrong and risky.

7. Raising Money for Nonexistent Events

A man claimed his house burned down and asked for help. He posted fake photos and raised thousands. Neighbors reported that his house was fine. He was charged with wire fraud. If you make up a story, you’re not just breaking GoFundMe’s rules—you’re breaking the law.

8. Not Paying Taxes on Large Donations

Some people don’t realize that large GoFundMe payouts can be taxable. One woman raised over $100,000 for a family emergency. She didn’t report it to the IRS. Later, she faced penalties and back taxes. If you raise a substantial amount of money, consult a tax professional. The IRS may consider your GoFundMe contributions as taxable income.

9. Campaigns for Controversial Causes

A group raised money for a cause that many saw as hateful. The campaign was reported and taken down. The organizers faced harassment and legal threats. GoFundMe can remove campaigns that violate its policies. If your cause is controversial, be ready for backlash and possible legal trouble.

10. Disputes Over Who Gets the Money

Sometimes, families or groups disagree about who should get the funds. After a tragedy, one family member started a campaign. Others said the money wasn’t distributed fairly. The dispute ended up in court. If you’re raising money for a group, set clear rules about how the money will be used. Put it in writing to avoid misunderstandings.

What You Can Learn from GoFundMe Legal Trouble

GoFundMe is a powerful tool, but it comes with responsibility. If you’re honest, follow the rules, and use the money as promised, you’re less likely to face legal trouble. But if you lie, misuse funds, or ignore tax laws, you could end up in court. Always read GoFundMe’s terms, keep good records, and be transparent with donors. If you’re not sure about something, ask a lawyer or tax expert. Protect yourself and your donors by doing things the right way.

Have you ever donated to a GoFundMe or started your own campaign? What was your experience? Share your thoughts in the comments.

Read More

6 Times a Trust Fund Caused a Family Meltdown

10 Reasons You’re More Likely to Get Money From a GoFundMe Than A Family Member

Tax Tips for Tax Time

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April is fast approaching and soon, everyone will have to visit their accountants and file their taxes. That said, we need to make sure we are filing taxes correctly. Keeping accurate and up-to-date records is important. Here are some tax tips and how to be well-prepared for tax time.

Contribute to retirement accounts

If you haven’t done so yet, or you’d like to contribute more, you have until tax filing day to do so. For a refresher, here are the contribution limits for some IRAs: IRA/Roth IRA – Max contribution is $6,000 ($7,000 if you’re over 50 or older).

If you have a SEP IRA and you get an extension, you have until October 17, 2022, to make your 2021 contribution.

This is more of a tip for the end of the year, but make sure you take your Required Minimum Distributions. For people that are either over 70 ½ or over 72, depending on when you turned those ages, you need to withdraw money from your IRA. If you don’t, you’ll pay a tax penalty of 50% of the amount you should have withdrawn. For example, if your required amount was $10,000. You’ll pay a $5,000 tax penalty if you didn’t take that distribution.

Make a last-minute estimated payment

If you didn’t pay enough or you didn’t make a payment to the IRS for 2021 taxes, you have until you file to make your payment.

According to the IRS rules, you must pay 100% of last year’s tax liability or 90% of this year’s or you will owe an underpayment penalty.

Get tax docs in order

Get all of your tax documents in order. For earnings for the year, you’ll need one to several forms, depending on what you do for a living and how your business is set up. W2s are pretty common. If you’re an independent contractor, you’ll need 1099. 

Itemize your deductions

Most people will take the standardized deduction, which is $12,550 for single filers and $25,100 for married couples filing jointly.

However, if you are self-employed or you have a lot of expenses that are tax-deductible, itemize your deductions. You could save a lot more money IF your total itemized deductions are larger than the standardized deduction.

Home office tax deduction

With the move to work from home still taking place, it might make sense to take advantage of the home office tax deduction. Here are some of the rules:

  • You must use the space exclusively for business
  • Expenses related to the space used for business are tax-deductible but need to be calculated according to the amount of square footage used for business
  • A lot of taxpayers stay away from this deduction, as they think it’s a red flag for an audit. If you’re legitimately using the space as you say and you aren’t fabricating numbers, then you have nothing to worry about

Last-minute tax tips for tax time

Triple-check your work if you prepared your own taxes and file on time. If you’re having someone prepare your taxes on your behalf, make your appointment ASAP because their calendars will fill up really fast.

Related reading:

Tax Tips for Small Business Owners

Are You Ready for Tax Time?

Why Financial Literacy is Important

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Are Business Gifts Tax Deductible?

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How do you strengthen relationships with customers and/or business partners? A tried and true way is using gifts. However, gifts cost money, so the next question is, are business gifts tax deductible?

The straight answer is yes, but it’s much more nuanced than that.

There are limitations

Business gifts are tax deductible, up to a certain dollar amount. You can deduct no more than $25 of the cost of the gift you give to each person through the course of the year.

Incidental costs such as engraving, packaging, and shipping are not included in the $25 limit as long as it doesn’t add substantial value to the gift.

Gifts that cost $4 or less are not included in the $25 limit IF the company name is permanently placed on the item and the gift is widely distributed.

Entertainment

Any item that can be considered a gift or entertainment is usually considered entertainment and is deducted at 50% of the value of the gift. For purchases that fall under both categories, use the “gift deduction” on lower-cost items and the “entertainment deduction” on items larger than $50.

Gifts to others

If you and your spouse give gifts to the same person, you’re treated as one taxpayer. The same rule applies to partnerships.

Gifting to a customer’s family counts as a gift to that customer, unless the customer’s family member(s) is a client as well.

The $25 limit only applies to gifts given to individuals. Gifts given to other companies, generally, don’t apply and are fully tax deductible.

Gifts to employees are taxable compensation.

Other relevant information

Keep adequate documentation that includes the purpose of the gift, what was spent, the date of purchase, and the business relationship.

Gifts given to a 501(c)3 non-profit are tax-deductible. Up to 25% of taxable income for a corporation.

A large majority of the information I have listed above came from the IRS publication about “Gift taxes”.

Related reading:

Some Often Overlooked Tax Deductions for Business Owners

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

How to Avoid NJ Exit Tax

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Federal income taxes are the same for every state. The only difference is how much money you make and what tax bracket you fall in.

State taxes are a completely different story because each state has its own rules. New Jersey is a perfect example with their “Exit Tax”. In this article, we’ll talk about ways to avoid NJ exit tax.


 

What’s the deal?

When you sell your NJ home and then move out of state, you have to pay the NJ exit tax.

When you sell a home, regardless of the state you live in, you have to pay tax on any gains you made. How much tax you pay depends on how long you owned and lived in the home.

According to NJMoneyHelp.com, “On June 29, 2004, New Jersey enacted P.L. 2004, Chapter 55, which requires sellers of real estate who are not residents of New Jersey to make an estimated income tax payment on the gain from the sale.”

It has nothing to do with selling and moving out of state. It’s just about selling the home and paying taxes on any gains made at the time of closing. The rule was enacted to ensure that NJ would receive the taxes owed on the property regardless if the seller was an NJ resident or not.

If you do not fill out one of the forms (see below) and pay the estimated taxes owed, the deed may be rejected.

Exemptions

There are 1 of 4 forms that you need to file when selling a home in NJ. Form GIT/Rep 3 Seller’s Residency Certification/Exemption – has 8 exemptions. The first applies to NJ residents. The remaining exemptions are listed below:

  • Real property was used as a principal residence and qualifies under IRC Section 121 of the Internal Revenue Code which excludes up to $500,000 of gain for married taxpayers, $250,000 for single taxpayers. Remember this does not include vacation or investment homes.
  • Addresses a mortgagor conveying the property to a mortgagee in foreclosure.
  • Seller is a governmental agency.
  • Seller is not an individual, estate, or trust, i.e. corporation, partnership, etc…
  • Total consideration is $1,000 or less
  • Gain from the sale will not be recognized if qualified under Sections 721 (contribution to a partnership), 1031 (like-kind exchanges), 1033 (involuntary conversions) and non-non-like kind property received
  • Transfer is by an executor/administrator of an estate pursuant to decedent’s Will

If one of these exemptions doesn’t apply to you, then you’ll have to pay tax on the proceeds and fill out Form GIT/Rep 1 or 2.

Conclusion

There are several ways to avoid NJ exit tax, but if you don’t qualify for one of those ways, make sure you fill out one of those forms and pay the taxes due.

Related Reading:

Should You Report Income From the Sale of Your Home on Your Income Taxes?

How is Passive Income Taxed?

Why Financial Literacy is Important

When are Per Diem Payments Taxable?

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Per diem payments are used when businesses have employees that travel. These payments are designed to relieve the employee from certain costs associated with traveling. Particularly meals and incidentals (ground travel, laundry, room service, etc.), and lodging.

This is great for both the business and the employee, but there are certain situations when per diem payments are taxable. In this article, we’ll explore exactly when an employee will pay per diem tax.

Two types

There are two types of per diem payments, meal-only, and meal and lodging. The names imply their use. One pays for meals, the other pays for meals and lodging.

It’s important that we specify the meals must be “non-entertainment related” meals.

Stipulations

As with many parts within the tax code, per diem rules are very specific. Meals and lodging have different rates.

Also, different cities have different rates. These differences are typically relegated to “big cities” and “small cities”, with bigger cities getting the larger rates. This is referred to as the high-low method. Businesses may also make payments based on the state in which you travel.

The per diem payments must be equal to or less than the federal allowable limit (depending on what method is selected). The employee is responsible for filing an expense report within 60 days. The expense report needs to include, date and location of the trip, purpose of the trip, and lodging receipts (if the meal-only option is selected).

You’re not allowed to “transfer credits”. What’s meant by this is if you use less on your lodging than is allotted, you can’t use the excess on food, or vice versa.

Tax Consequences

As I mentioned in the introduction, per diem payments can have tax consequences.

  • If per diem payments over the limit are taxable on the employee’s wages
  • If an expense report isn’t filed, or the filed expense report doesn’t include the required information, those per diem payments become taxable to the employee.
  • If the employer allows you, the employee, to keep whatever you don’t spend.

If you travel for business and receive per diem payments, just make sure you keep good records, and you hang onto your receipts. It’s better to have too much information than not enough.

Related reading:

Some Often Overlooked Tax Deductions for Busines Owners

Top 5 Overlooked Tax Deductions You Should Be Using

Why Financial Literacy is Important

 

*Be advised: Securities America and its representatives do not provide tax advice. Please consult a tax professional for specific information regarding your individual situation.

I Forgot To File My Taxes

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Every year I meet a couple people who tell me “I forgot to file my taxes.” How do you forget to file???? Here’s the steps to make it all right with the government.

Did you file your taxes this year? Did you know that nearly 10 million U.S. citizens fail to file by April 15th each year? Some avoid filing on purpose, but many just plain forget. So don’t worry. If it slipped your mind, you’re not alone.

If you still have yet to calculate your refund/payment, do this immediately. Even though you’re late, the process is still the same. Get the appropriate forms and gather all of your tax information and either head to your accountant or calculate your taxes yourself (whatever it is that you typically do). Once you know whether you owe money into the government or if you’re getting a refund, you can take the next steps to file.

 

What Is The Penalty?

 

For most of us, we plan on receiving a refund each year. Some of us even plan on getting as much back at $4,000 or more. This shouldn’t really be your goal since you’re basically allowing the government to use your extra money interest free, but that rant is for another article I suppose. If you have always received some money back each year, then you have absolutely nothing to worry about for filing late. There is no penalty. I was actually surprised to learn this, but it makes complete sense. Why should the government charge you if they just get to keep your money a little longer. In fact, they would probably rather that you never filed your taxes!

If, however, you typically owe money into the government each year, then you will most likely have to pay in a little extra for your late payment. There are three types of penalties that you’ll have to pay: Failure to File Penalty, Failure to Pay Penalty, and Interest.

Failure to File Penalty

This penalty occurs because you did not file your taxes by the deadline and you owe money to the government. The amount of money you owe depends on how late you are to file. If you’re a month late, then you owe and additional 5% on top of what you already owe. For each month that it’s late, you have to add an additional 5%, up to a maximum penalty of 25% (if you’re 5 months late or more).

Failure to Pay Penalty

This penalty occurs when you file, but you just don’t pay the amount you owe. The penalty is 0.5% for each month that you have still not paid in full. There is not maximum penalty, so it’s definitely best to pay the full amount as quickly as you can.

Interest

In addition to the traditional penalties, the government also want’s the money back with interest. While this amount changes all the time, it is currently set at 3% interest per year, but it is calculated based on every day that your return/payment is late. Again, it’s best to pay this sooner rather than later.

Basically, to sum it up, if the government owes you money, you have nothing to worry about. Just file your taxes and you’ll receive your check shortly, with no penalty. If you owe money in, then you’ll have to pay quite a few penalties. So, rather than play the “wait and see” game, you should calculate your taxes and file them as soon as possible.

Photo: 401(k) 2013

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Five Money-Saving Tasks That’ll Help You Cha-Ching! in the 4th Quarter

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I love the sound of the cash register ringing, don’t you?

If you’re going to be successful in your financial life, treat it as if it’s a business and you’re trying to hear that awesome cash register sound. If you don’t, you’ll always prioritize yourself behind more “important” activities like your job (nevermind that the job is there to help your net worth…that’s probably the subject of another post).

Every business has a mandatory list of activities that can’t be ignored. So does your financial life.

Here are five items that MUST be on that list this quarter:

1) Mutual fund capital gains. Even if you don’t have mutual funds outside of an IRA now, you should learn how these rules work. When the manager (or system, for an index fund) trades stocks or bonds inside of the fund a capital gain is generated. Someone has to pay it, and there’s no real fair method, so the mutual fund company declares a date and divides the gain among shareholders of record. Even if you didn’t sell the fund, you’re responsible for your portion of the manager’s buying and selling.

With results so far in 2012 looking up, there’s a good chance you might get hit with a tax bill this year. Avoiding this tax is legal and easy. Find the dates the fund declares capital gains and transfer your money to a different fund in the same family. This avoids fees for switching and the manager’s capital gains tax.

Grab a calculator before you move any money. You’ll still be on the hook for capital gains taxes you generate by selling as well. The cost of switching might outweigh the savings you’ll realize from avoiding any taxes created by the fund manager.

2) The lemon drop. Hoping to skim off some of that skyrocketing Apple stock? Cover a portion of your capital gain by also selling your brother in law’s “can’t lose” loser. There’s no time like now to weed your portfolio of positions that aren’t going anywhere. Although you’re only allowed to show $3k in net capital losses each year, leftovers can be carried over to deduct in future years.

3) Charitable giving. Hopefully you’ve given to your favorite community non-profits throughout the year, but if not (and especially if you itemize), you’ll want to make cash and in-kind donations in before December 31. Keep receipts for your gifts. The IRS has tightened charitable giving laws in recent years.

4) Estimate your taxes and decide when to pay property taxes. If you own a home winter taxes are deductible either in December or January, your choice. Did you receive a big bonus this year? Take the extra deduction now to help lower your tax due. If you make too much, it might be a better idea to wait until next year. High income earners aren’t allowed to claim all of their itemized deductions (ask your accountant about whether you’re subject to phaseouts).

5) Goal evaluation and setting. The 4th quarter is the perfect time to begin thinking about your short and long term goals. Did you hit your benchmark in 2012? If not, what are you going to change in 2013?

While people generally talk a good game about benchmarking, most of my clients were surprised when I pulled the actual number out of their plan to see if they’d hit the mark during a year. By sticking with actual data and avoiding the “Yeah, it feels like I had a good year” you’ll be able to make the necessary course corrections to save the right amount of money in the upcoming year.

I’ll be addressing each of these areas in more detail during the course of the quarter, but do yourself a favor and schedule these tasks now. These are five activities that you don’t want to miss!

What other events are on your 4th quarter financial calendar?

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How to Split an IRA or 401(k) in a Divorce

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Divorce is ugly.  Except under the most limited circumstances, no one wins in the divorce game.  Then, you add the complexity of money into the equation and it gets downright hideous.  In that emotional time, it’s easy to understand why so many people divide IRAs, 401(k)s, and other retirement accounts sub-optimally.

You can’t just “take the money out and give it to my spouse”  That would be a big mistake.  Let me count the ways:

Let’s assume you own a $250,000 401(k) balance.  The judge rules that you’re required to split that 50/50 with your spouse, so you decide it would be easiest to make a phone call and take the money out.  Ouch.  If you do that, you’ll be hit with a 10 percent early withdrawal penalty (yes you, not your spouse, and only if you’re under 59 1/2) and then the amount you removed is added to your taxable income for the year.  Now, for many reading this blog, you’ve just lost 35-45%.

So how do you give $125,000 to someone?  Oh that’s easy – you gift that to them.  But in your haste, you didn’t do this correctly either. To gift it, you either need to reduce your lifetime exemption by filing a form 706 with your income taxes next April, or pay a gift tax of 50%.

Long story short: “taking it out” could be a massive financial mistake.

Instead, consider asking for a QDRO, or Qualified Domestic Relations Order (pronounced quad-row).  A QDRO put together by a competent attorney and signed off on by the judge makes this transfer a ton easier.

First, it directs your retirement plan company to establish another qualified plan in the name of your spouse.  Then, it directs a tax-free transfer to that newly established account.  No taxes, no penalties.  Easy as pie.

Once you’ve begun working on that, you’ll want to make sure the QDRO says that your soon-to-be ex-spouse can’t make any loans or transfers from the account until it’s been split; or you could just pick a date to make the transfer effective on (retroactive) and put a fixed dollar amount based on that date’s plan balance.  This would protect the new beneficiary from being bamboozled by his or her ex.

Finally, don’t forget about pension plans.  A lot of those can be “QDROed” too.  For example, let’s assume your spouse earned a pension at his job of $4,000 during the 30 years he worked.  He was married to you for 20 of those 30 years – making you the owner of 2/3 of his $4,000 per month.  By putting the QDRO in place before he retires, she can have her own pension plan – quite the deal!

At the end of the day, divorce planning with money is just as important as married couple planning.  If you don’t do it, you’ll regret it.  Take the time to review everything – hire a professional and don’t try to cut corners.  The costs are too severe.


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