The Secret Way to Access Retirement Funds Penalty Free

Right. So what do you do if you want to get access to your 401k or your pension, but you're still working? You know, traditional knowledge says, too bad, too sad, you got to wait till you retire. And that may be the case for you. But what if. What if you want access because you want different investment options? What if you want access to those, to that pot of gold you have because you want to put together a real estate portfolio, or maybe you want to invest in private syndications, or maybe you just want to manage it differently than the options that are available in your plan. What do you do? So in today's episode, I'm going to introduce you guys to an attorney who may have a solution for you. He's really discovered a way that can open up maybe that trunk of your pot of gold a little bit earlier than what you maybe think it is. Well, Marcus Foote is joining us. He has a family law practice in Baton Rouge, Louisiana. So thanks for joining us, man. Let's just kind of skip to the bottom line for folks and not kind of drag it out and then we'll come back and we'll work our way through the details.

So I guess in general, what we figured out is a way to access or get access to qualified funds, which would be 401ks, 403s, Prophesia plans, pension plans, mostly corporate plans, company plans governed by Arista in the background. I've been doing my specialty as board certified female attorneys to do Quadros, which is qualified domestic relations order, which is a way to transfer it usually out with a divorce. If you Google Quadra, that's all you're going to get is a valid divorce. And because I've been doing that as a specialty 20 years, about eight years ago, I figured out that the word divorce was not there. So it allowed me a way of accessing or triggering the federal statute by having these types of, certain types of interspousal agreements. And then we just started doing in Louisiana, we did it with Texas. We did them for two or three years and bottom line is we were to now do them all across the nation. But again, it's basically to get access where you couldn't otherwise get it.

Yeah. So in essence you're doing the same thing that somebody would do in a divorce, but you're doing it, it's accessible for all kinds of reasons other than divorce. Right. So.

Correct.

What are the most common reasons? Go ahead.

I'm sorry. Well, I'll just say this. For happily married people, it is basically allowing when People misconstrue is they think that a divorce is what triggers the ability to do a qualified domestic relations order. But it's not. It's the property settlement that usually is overrelated to the divorce. So we just simply kind of came up with knowing how spouses can contract between each other. We started doing, you know, coming up with certain types of agreements that can between spouses as legally binding that can trigger being able to do a quadrant which means it allows it to get access to the funds to transfer to your spouse.

Well, you know, when One of our CFPs introduced me to your website and the concepts that you talk about, it just my financial planner brain just started going on hyperspeed. Of all the different ways that you could use this in and really helping people in a really a great way to unlock funds that are kind of in this locked trunk. But what are the, what are some of the most common reasons that your clients are coming to you and they want to do this? What are the top three or four reasons that you see that people are doing this?

I would say probably the most common is to be able to diversify their 401k. They always have a plan that house only a certain number of options. So I would say just getting access for that's probably the number one. I would say the number two reason is to put it in alternative investments. With the stock market going up and down, some people like doing alternative investments. I remember one person using their 401k and moving to a self directed IRA and bought a restaurant. Now maybe that's a good idea, maybe that's a bad idea. I'm not in the restaurant business but you couldn't get that type of dynamic inside of your 401k. And so if they believe that could be a better money maker than you know, buying another share of stock, that's useful. The other one I would say probably one of the most used is it allows you to roll the funds down to a spouse that might be significantly younger. Say for example, the person is 69 years old and they're married to a 60 year old, well, they're going to be paying RMDs in what, two and a half years. So if you can actually move a million $401k down to your 60 year old spouse, you're delaying RMDs for like nine years. And you can do the math on that. And, and depending on the amount, you're not going to do that for 100,000. But for a million dollars that's a significant Savings. We actually got hired by a couple of clients and what they did was one little known thing is you don't actually pay the 10% early withdrawal account. You know, you have a 401k. If you take your money out before you 59 and a half, you'd in the 10% colony. Divorce attorneys have been using this federal exemption for years and years and years. When you do a quadri, you don't pay the 10% penalty. So we have, I've had at least three or four clients go and just liquid a large part of their 401k in order to not just roll it to a self directed IRA, but cash it out without the 10% penalty in order to invest it into other types of real estate, other types of investment. We had one that would do it in these oil leases and then take a tax, you know, deduction. I mean, there are a lot of complicated type stuff, but it allows it to get access at a lower tax rate and without the 10% pillow, if you have a $500,000, you want to get access to it, you would do a $500,000 ply grow, but you might only then convert a couple hundred thousand. You can actually liquidate. So if you have a $500,000 quadra, you can say, hey, roll 400 to my IRA or my spouse's IRA and liquidate 100. And I've seen people use that to pay for the cost of the Roth conversions, where you can do a hybrid of partial rollover and a partial liquidation.

Marcus, are there, are there limitations on the dollar amounts that can be done, on the age at which this can be done? Are there any kind of limitations people need to be aware of?

Specific limitations would be no. Would be the type of plan would be the only limitation. You could do it at any age. You know, when it talks about amounts, you can do it in any amount. Now, obviously, whether it's justified, if you're talking about a, you know, 75,000 or $50,000, it's not worth it. You can do it alone. You can do some other mechanism. By and large, you can do any amount. We've seen that. I would say the minimum would probably be close to 150 to 200,000 at that point. It's not. If you go below that, it would likely not be worth it. As far as the timing, there isn't any limitation to that effect. We basically kind of say is that of maybe five or six different ways you can get access. You know, like a retirement hardship, you know, divorce, things of that Basically what we did was we created a sixth trigger to get access to your funds before you retire.

And one thing we need to also just kind of tell people is that this isn't available in every state. Right. So you have to explain to them the limitations in the states that they live in.

So theoretically, federal law, erisa, federal law, applies to all the states. The reason why I say it's not applicable in every state is because certain states have their own state civil procedure, and their state procedural rules will prevent certain types of spousal agreements that are necessary to trigger the Quadro statute. So we've done them in 30 states. We have only been turned down in about two. There's the other states. We just haven't had a test case yet, so to speak. But again, it's not because that. It's because that state has a procedure, a specific law, and the two just aren't meshing together.

Well, what happens once you get that money from you to your spouse? What happens if. If somebody dies or there's a divorce that you're not planning on? What happens now?

All right, so I'll handle the second one first. This is an actual transaction. This is not a simulation. It's not some kind of shame transaction. This is a transaction. So if your spouse were to divorce you, you know, it's an enforceable transaction. Now, there are some things that we do to, I guess, minimize the risk, so to speak. So, for example, if you had a. I'm just going to give an example. If you had a $800,000 401k, you don't necessarily have to get all 800,000. You can say, hey, you get 400,000, I get 400,000. And we do the. In marriage closure on the 400,000. That's going to your spouse. So you're. You're still not necessarily losing anything. You're kind of replacing it somewhere else. If you wanted to give her the entire 800,000 a. You either have to or him. I'm not in census here. It could be him or her. You know, Whoever has the 401k, you would have to either say that's at risk if we get a divorce or say she gets the 401k, I get part of the pension. You bring in some other asset to kind of somewhat equalize the risk. So again, it is an actual transaction. If people were to die, it was not going to be in your estate. So you can talk to an estate planner. Obviously, you want to make sure the beneficiaries go back to your spouse. I mean, you're not trying to actually cause more marital turmoil than might already exist in that regard. Regarding the irs, all my answer could be is this. We've been the first one like this we did was in 2013. I've given three or four national seminars and we have not had a single person report back. They've had any trouble because of two reasons. One, the Department of Labor as we governs the ERISA statute. So it wouldn't be the irs. The IRS won't get involved unless you actually liquidate it. Well, the 1099 on a quadrillequidation is the exact look as the 1099 for the regular divorce quadrant, which I've been doing for 25 years now. So there's almost no scenario that I can come through where the IRS is going to have an issue. The only snafu is the plan needs to know that all the I's have been dotted and all the T's are going to be crossed. And so that's the only issue. You may get some pushback from the plan. If they just are seeing this for the first time, that that's really the risk.

Give us kind of a general overview. What are the steps involved? What you know, how much glass do they have to crawl through? How long a process is this just kind of big picture for us?

All right. So I would say on process itself, I would say depending on the state will take anywhere from two and a half months being the fastest that I've seen, to maybe four months if you're in some of the states that don't go so fast. I guess as far as what you would do if you were interested, for example, if you had a client and you know, we would send you our 2 page client information that just gives, you know, names, addresses, ages, dates of marriage, things of that sort. Nothing too, too specific and a copy of the 401k or whatever the plan statement is. So then we can that it's a qualified plan. Right? It can be a non qualified plan. There are certain types of 403Bs that may get hiccups here and there. So. So you get that information. We would do free consultations once they would hire us. So I guess that's where your question starts. Once they would hire us, we, we do a zoom, usually within the first week or two. We have a network of attorneys because I'm not licensed in 50 states or 30 states. So we have a network of attorneys that we've built up over the years. We set up a three week conference talk about what the potential risks are. We'll talk about how much they want to transfer. We talk about any other questions that they may have. We try to give them the documents. And what we're doing is we're creating an interspousal agreement that's specific to that state. Once the interspousal agreement is signed, we file it into court to enforce that agreement, because, remember, they don't have a pending divorce petition at this point. So you.

You.

There isn't. Those names are presumably not in the. In. In the suit. And this actually gets filed and voided, signed and signed off on by a judge. Once the judge signs it, assume the judge signs it. We would then send it to the plan, literally, just like it was a regular divorce quadra. We, you know, we changed some of the language and retrofit what a regular quadra would look like, and then the plan qualifies it in the same process as a regular divorce quadra. And then once we get the qualification letter back, theoretically, my job and the local attorney's job is over. Right. Because what they would do with it with their money, whether it's a financial advisor or they're doing it on their own, you know, I'm not gonna. I'm not giving them financial advice. I'm kind of moving it from one bucket of money to the other bucket of money legally, and then, you know, they handle the financial planning themselves.

So, Marcus, thank you so much for taking the time to join me today. I hope people reach out. You know, I know that we've educated. You came in and you educated our staff as CFPs, and it's top of mind for them, and they're looking for opportunities as the months go by where we can help clients more by sending them to you. So thank you for kind of sharing the info, as always. Guys, we don't sell financial products. We don't want to manage your investments. We only want to provide advice that helps you make the best possible decision. Have a great rest of your week, and God bless.