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Marriage is a huge step for most people. It signifies some major life changes — including to your finances. Even as you celebrate, you might have some questions about exactly what marriage means for your financial future. Is their debt now yours? What is your liability when it comes to student loans, credit cards, and other forms of debt? What happens to your credit score?

These issues can get complicated. The short answer is that, among other factors, it depends on where you live. Divorce, death, joint accounts, and court proceedings can all make a huge difference in your liability when it comes to your spouse’s debt. Let’s take a look at the complexities of sharing assets and debt with a spouse.

Credit Card Debt Liability in Common Law States

Most U.S. states are common law states. That simply means the property you acquire belongs to you — even if you’re married. Unless the property is in both people’s names, it belongs to one person. Forty-one states are common law states, so it’s likely this policy applies to you.

When it comes to money and marriage, common law provides that one spouse owns a particular asset unless you both put your names on it. That includes property like houses, automobiles, and even credit cards. If your spouse has a credit card with their name on it, it’s theirs alone. Therefore, the credit card debt liability also falls entirely on their shoulders.

You would need to become a joint account holder in order to own any part of that debt. However, you could also be on the hook for that debt if you co-signed on the account. If your spouse made you an authorized user, though, that still leaves the credit card entirely in their name and not yours, meaning you hold no responsibility for paying any associated debts.

Spouse’s Liability in Community Law States

There are nine states that are community property states rather than common law states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, any assets acquired during a marriage belong to both partners. It doesn’t matter who owns the account or property; the assets belong to both of you. There are, of course, some exceptions to this rule. These include if:

•   A purchase was made solely by one spouse and the property is listed only in their name;

•   The property was gifted to just one spouse;

•   The property was inherited by just one spouse during the marriage;

•   Property was acquired by just one spouse through a will or trust fund;

•   The property was acquired before the marriage began;

•   The property was acquired while the spouses were legally separated and living separately.

In a common law state, your partner’s credit card belongs only to them. But in a community property state, if they get a credit card while you’re married, that debt now belongs to both of you. Both partners are liable, regardless of who might have opened the account or accrued the debt, though there is an exception: If you and your spouse are separated before they begin racking up the debt in question, you may not be held responsible. Each situation is different, however, and the state could hold you responsible for the debt in question should it be proved the debt was incurred for the benefit of the marriage.

It’s good to keep in mind that if you have debts from before the marriage, such as a car loan, those will belong only to you. However, if you get another car loan after getting married, that is now a communal debt that you and your partner share.

Will My Partner’s Debt Affect My Credit Score?

You can breathe easy here. Even in a community property state, your partner’s debt won’t affect your credit score. If one person has some ups and downs in their credit history, that remains their credit history alone.

However, things change if you open any sort of joint account after getting married. Because that account is partially yours, it will appear in your credit history, so it’s a good idea to make sure you’re feeling confident in your spouse’s financial standing (and responsibility) before opening that joint bank account. You can always keep your financial accounts separate to protect your credit score, if you have concerns. When it comes to things like checking and savings accounts, though, even common law states may end up viewing these as joint property in the case of a divorce, and community property states almost definitely will.

What Happens If We Separate Or Divorce?

While one of the first questions may be ‘how much will a divorce cost me,’ it is very quickly followed by, ‘what happens to our debt?’ Again, it depends. Debt isn’t as simple as dividing things in half. For example, if you have a credit card that is only in your name, that debt remains entirely with you. However, if you have a joint credit card, most states will see that as joint debt if you separate or divorce, meaning you’ll both be responsible for that debt. It doesn’t matter who was making payments or running up bills; the law will see it as a shared burden.

But there’s a lot more than credit card debt to consider during a divorce. If you have a house, you may want to consider selling it off and splitting the money. Trying to untangle a mortgage debt if one of you will be moving out can get dicey. The partner who’s staying in the home may need to buy out the partner who’s leaving, for instance.

All of this becomes even more complicated if you did any investing as a couple during your marriage. Investments come with legal and tax obligations, on top of the financial complexity. If you invested together, you may want to think about selling off those investments and dividing the proceeds during a divorce. However, a lot of investments like that come with tax burdens, so keep that in mind if you have to go this route. Backing out of certain investments early, or even getting paid out for investments, could incur fees and taxes that you and your partner will have to sort out.

It is possible to split those kinds of investments. If it was stock, for example, you could divide up the shares between both partners. This can get messy, though, if one partner is a more aggressive investor than the other.

Of course, the courts might answer this question for you. If you decide to divorce and it is contested, the court could determine which partner owns which debt. In that case, it won’t really matter who opened the account. You will likely have to pay off the debt assigned to you or your ex-partner will be able to sue you. And if your partner goes through bankruptcy, you may have to handle some of that debt if the court orders you to, regardless of whether or not the court discharges any of that debt.

Finally, sometimes a spouse, unfortunately, passes away. Again, if you have joint accounts, you will probably be liable for that debt. If you co-signed anything or your name appears on the paperwork, you may have to handle that debt burden on your own now. Sometimes assets and property can help pay off that kind of debt, but that will depend on the state you live in and what kind of assets you and your partner owned.

The Takeaway

Finances can be complicated at the best of times, and marriage can multiply the complication. If you want to be certain of what your state says about property rights for married couples, the first thing you can do is find out if you’re in a common-law state or a community property state.

After that, you may want to consider how intertwined or separate you want to keep your accounts. If you have concerns, you may want to shy away from things like co-signing loans or setting up joint accounts. Instead, you could sign up for a SoFi checking and savings account before you get married as a means of having assets that belong exclusively to you, even during marriage. Having a bit of money you manage on your own could ease some of your financial fears going into a marriage.

Photo credit: iStock/AleksandarNakic

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Do you dream about a retirement where you escape away to your cabin in the woods, or one where you’re flying your grandkids to Europe for an epic vacation? Making this dream a reality requires tucking money away for the future. And for many people, the place to do that may be within a 401(k) account.

A 401(k) account is designed for retirement saving. One of the reasons Investors may prefer it over saving and investing in a brokerage account is because it is not subject to federal income taxes until distribution.

You might be trying to keep the money in your 401(k) until retirement, but sometimes, life happens, and there may be situations where you need some extra cash. It is only natural to look at all of the available options, and that may include the option of tapping into your 401(k) funds.

You may want to proceed with caution, though. Because of the special taxation of this account type, the 401(k) has an early withdrawal penalty. Therefore, it may be worth exploring other options.

To answer the question, “what is the penalty for withdrawing from a 401(k)?” it helps to understand how a 401(k) works in the first place. Here’s some good things to know about the 401(k) early withdrawal penalty, along with some ideas on how to access cash without using funds from your 401(k) account.

How Does a 401(k) Work?

A 401(k) is an account designed to hold money and investments for retirement. Why does it have such a funky name? Well, it’s named after a line in the tax code that gives the 401(k) it’s special taxation. It’s a reminder that rules regarding 401(k) accounts are set by the IRS and generally have to do with taxation.

Essentially, the IRS allows investors to stash a certain amount of money away each year for retirement, without having to pay income taxes on those contributions.

In 2022, that contribution maximum amount is $20,500 per year , with additional catch up contributions allowed for those 50 and older. Additionally, the investments within the account are allowed to grow tax-free.

401(k) participants can’t avoid paying income taxes forever, though. When retirees go to pull out money in retirement, they must pay income taxes on the amount withdrawn.

So, while you have to pay income taxes eventually, the idea is that maybe you’ll pay a lower effective tax rate as a retired person than as a working person. (Although, none of this is guaranteed because we can’t predict future tax rates.)

The IRS classifies 59½ as the age where a person can begin withdrawing from their 401(k). Before this age and without an exception, it is not possible to do a 401(k) withdrawal without penalty.

What is the Penalty for Withdrawing from a 401(k)?

When a 401(k) account holder withdraws money from a 401(k) before age 59½, the IRS may charge a 10% penalty in addition to the ordinary income taxes assessed on the amount.

Unqualified withdrawals from a 401(k) are considered taxable income. Then, the 10% penalty is assessed on top of that. This could result in a hefty penalty.

Is a 401(k) Withdrawal Without Penalty Possible?

There are some exceptions to the 401(k) early withdrawal penalty rule. For example, an exception may be made in the event that a participant has a qualifying event such as a disability or medical expenses, and must use 401(k) assets to make payments under a qualified domestic relations order, has separated from service during or after the year they reached age 55, or that a distribution is made to a beneficiary after the death of the account owner.

Additionally, it may be possible to avoid the 401(k) withdrawal penalty through a method known as the Substantially Equal Periodic Payment (SEPP) rule. These are also called 72(t) distributions.

To do this, the account owner must agree to withdraw money according to a specific schedule as defined by the IRS. The participant must do this for at least five years or until they have reached age 59½.

Under the 72(t) distribution, a participant will systematically withdraw the total balance of their 401(k). While this is technically an option in some instances, it does mean taking money away from retirement. Consider this while making your ultimate decision.

Alternatives to an Early 401(k) Withdrawal

Because of the steep penalty involved, you may feel inclined to shop around for some alternatives to early 401(k) withdrawal.

Participants can consider taking a loan from their active 401(k). The money is removed from the account and charged a rate of interest, which is ultimately paid back into the account. The interest rate is generally one or two points higher than the prime interest rate set by the IRS, but it can vary.

While this loan may come with a competitive interest rate that is repaid to the borrower themself and not a bank, there are some significant downsides. First, taking money from a 401(k) account removes that money from being invested in the market. A participant may miss out on the market’s upside and compound returns.

Though a 401(k) loan might seem like an easy option now, it could put a person’s retirement at risk.

It is easy to imagine a scenario where the loan does not get repaid. If the loan is not repaid, the IRS could levy the 10% penalty on the distributed funds.

Additionally, money that is repaid to a 401(k) is done with post-tax money. The money that is borrowed from the 401(k) would have been pre-tax money, so replacing it with money the borrower has already paid taxes on may make a 401(k) loan more expensive than it initially seems.

In addition, if a person were to leave their company before the loan is repaid, the loan would need to be repaid by the time you file your taxes for that year or penalty and income tax could be due. Participants should proceed down this route with caution.

A second option is to consider withdrawing funds from Roth IRA assets. Under IRS rules , any money that is contributed to a Roth IRA can be removed without penalty or taxes after 5 years .

Unlike with a 401(k), income taxes are paid on money that the account holder contributes to the account. Therefore, these funds aren’t taxed when the money is removed. (This only applies to contributions, not investment profits.)

Again, common advice states that removing money from any retirement account should generally be considered a last-resort option. The average person is already behind in saving for retirement, so even Roth IRA funds should only be considered after all other options are exhausted. If you haven’t started saving for retirement yet, consider opening an ira with SoFi. You will get access to a broad range of investment options, member services, and our robust suite of planning and investment tools.

Another option to consider could be a personal loan. An unsecured personal loan can generally be used for any personal reason

By using a personal loan, the participant is able to avoid a 401(k) early withdrawal penalty and leave all of the money invested within the account to grow uninterrupted.

A personal loan also puts the borrower on an amortized payback schedule that has a defined end-date. Having a defined payback period may be beneficial during debt repayment—it provides a goal, and it is clear how progress is made throughout the life of the loan.

Compare the set amortization of a personal loan to a revolving credit card, where it can be quite tempting to add to the balance, even as the person is attempting to pay it off in full.

When charges are added to a credit card, the end-date can be pushed out further, especially in the event that the borrower is only making minimum payments. This is not the case with a personal loan where a lump sum loan amount is disbursed and paid back within a set timeframe.

With all of the above options, it is recommended to sit down and map out the cost of each. To do this, you may want to consider using a personal loan calculator and/or working with a tax advisor or financial advisor to help identify the best course.Ultimately, it will be up to you to research the best option given your needs.

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When it comes to retirement savings, there are a number of factors to consider: Social Security, inflation, and health care costs. But ultimately all these concerns boil down to one question: How much do you need to save to retire?

Thankfully, there’s a formula for calculating these costs, which might help you plan for the future. But first, decide at what age you want to retire and then see how that decision affects your finances.

When Can You Get Full Social Security Benefits?

At what age does the government allow people to retire with full Social Security benefits? And at what age can people start withdrawing from their retirement accounts without facing penalties? For Social Security, the rules are based on your birth year.

The Social Security Administration has a retirement age calculator . For example, people born between 1943 and 1954 could retire with full Social Security benefits at age 66.

Meanwhile, those born in 1955 could retire at age 66 and two months, and those born in 1956 could retire at age 66 and four months. Those born in or after 1960 can retire at age 67 to receive full benefits.

Social Security Early Retirement

A recipient will be penalized if they retire before full retirement age. The earlier a person retires, the less they’ll receive in Social Security.

Let’s use John Doe as an example and say he was born in 1960, so full retirement age is 67. If he retires at age 66, he’ll receive 93.3% of Social Security benefits; age 65 will get John 86.7%. If he retires on his 62nd birthday–the earliest he can receive Social Security–he’ll only receive 70% of earnings.

Here’s a retirement planner table for those born in 1960, which shows how one’s benefits will be reduced.

Source: Social Security Administration

Social Security Late Retirement

If a person wants to keep working until after full retirement age, they could earn greater monthly benefits.

For example, if the magic retirement number is 66 years but retirement is pushed back to 66 and one month, then Social Security benefits rise to 100.7% per month. So if your monthly benefit was supposed to be $1,000, but you wait until 66 years and one month, then your monthly allotment would increase to $1,007.

If retirement is pushed back to age 70, earnings go up to 132% of monthly benefits. But no need to calculate further: Social Security benefits stop increasing once a person reaches age 70. Here is a SSA table on delayed retirement .

When Can You Withdraw From Retirement Accounts?

Now let’s look at retirement accounts. Each type of account has different rules about when money can be taken out.

If a Roth IRA account has existed for at least five years, withdrawals from the account are usually okay after age 59½ without consequences. Taking out money earlier or withdrawing money from a Roth IRA that’s been open for fewer than five years could result in paying penalties and/or taxes.

There is a little wiggle room. Retirement withdrawal rules do have exceptions for issues like disability or educational expenses, and there is an option to withdraw money early and pay taxes or penalties.

If a person is at least 59½ and has a Roth IRA that is less than five years old, taxes will need to be paid upon withdrawal but not penalties. Taxes or penalties might not need to be paid at age 59½ and if the Roth IRA has been open for five years or more.

People with a traditional IRA can make withdrawals from ages 59½ to 72 without being penalized. The government will charge a 10% penalty on withdrawals before age 59.5, and depending on location, a state penalty tax might also be charged.

People with 401(k)s can typically retire by age 55 and make withdrawals without receiving a penalty. People with either a traditional IRA or 401(k) must start making withdrawals by age 72 or face a hefty penalty.

How Much to Save for Retirement? Here’s the Formula

Everyone’s situation is different, so it might make perfect sense for one person to retire at age 62 and another at 55. However, waiting until full retirement age or even age 70 not only gives Social Security more time to accrue—it gives a potential retiree more time to accumulate savings in a nest egg.

So is working till the age 70 absolutely necessary to earn enough money to live off of after retirement, or will there be enough in savings by age 67 or 68? This is where the question “How much do you need to save to retire?” comes in.

Fidelity’s research shows that if a 30-year retirement is planned and annual spending is expected to be 4% to 5% of savings, adjusting for inflation, there is about a 90% chance of not running out of money.

The exact percentage can depend on the age of retirement and life expectancy. That number changes if a person retires at age 60 and plans a 35-year retirement—about 4.3% could be withdrawn per year to retain that 90% likelihood of financial security.

To break it down, $1 million in savings is a fair number to get through the retirement years.

Source: Fidelity

How Much Money Is Needed Each Year to Live On?

The rule of thumb was once 80% of current income. But that assumes the mortgage is paid off and taxes will be lower. Many people will still have mortgages.

Since a large part of a retirement income comes from withdrawals from retirement plans that give taxable income, the tax rate might not go down much. Plus, many people might want to travel or spend money on hobbies in the early years of retirement, and many might need expensive health care as they live into their 90s and beyond. That means more than a current income might be necessary.

A retiree may be living off money from both Social Security and a retirement account. If Social Security is an option, and if it’s still around at retirement, that could reduce the amount that needs to be withdrawn from a retirement account each year.

Here’s the Retirement Savings Formula: Start with current income, subtract estimated Social Security benefits, and divide by 0.04. That’s the target number in today’s dollars.

The Takeaway

Nobody knows what the future holds—tax rates, inflation, health care reform, and Social Security are all outside our control. But the amount saved and invested is not.

With SoFi Invest®, you can track investments and choose exactly how active you are in the process. SoFi offers an Active Investing platform, where investors can buy stocks, ETFs or fractional shares. For a limited time, funding an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is open and fund a SoFi Invest account.

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