Keep the house or take the retirement money?
Key numbers
- A single filer can exclude up to $250,000 of gain when selling a main home, and $500,000 on a joint return, after owning and living in it for at least 24 months out of the last 5 years (source: IRS Topic 701).
- Money taken out of a traditional 401(k) is includible in gross income and taxed, so at a 22% rate, $400,000 on paper is $312,000 in your hand (source: IRS Topic 558).
- This site assumes 7% of the sale price goes to agent fees and closing costs, so a $600,000 house costs $42,000 to turn into money (our assumption, explained in how we make our numbers).
- A former spouse paid under a QDRO is on the IRS list of exceptions to the 10% extra tax on early retirement distributions (source: IRS Topic 558).
This is the trade almost every divorce over 50 comes down to: she keeps the house, he keeps the retirement accounts, and everybody calls it even. It is often not even, because the two sides are quoted in different currencies. Put your numbers in and see both sides in the same money.
A recent appraisal is best. An online estimate gets you close enough to see the shape of the answer.
Include a home equity loan or second mortgage if there is one.
Two piles of money that are not the same money
Say the house has $400,000 of equity and his 401(k) has $400,000 in it. On the settlement paperwork those look identical. They are not.
The 401(k) is money that has never been taxed. Every dollar that went in skipped income tax at the time, and the deal was that tax gets paid when the money comes out. So $400,000 in the account is $400,000 minus whatever tax band you are in when you spend it. At 22%, that is $312,000 of real spending power.
House equity is different. That money has already been taxed. But it is locked inside a building, and the only way to get it out is to sell or to borrow against it. Selling costs money: agent commission and closing costs run about 7% of the sale price in most of the country. On a $600,000 house that is $42,000, gone before you see a cent.
So one side loses tax and the other loses selling costs. The only fair comparison is after both. That is all this tool does.
Three examples, run through the calculator above
Every figure below is produced by the same code the tool runs.
Maya, 57: household income about $60,000, 12% tax band
House worth $280,000 with $90,000 left on the mortgage, so $190,000 of equity on paper. After selling costs, the house side is worth $170,400. The $160,000 of retirement money on the other side is worth $140,800 after tax at her low band. The gap is $29,600, and it runs in favour of the house. In a low tax band, retirement money holds its value better than most people expect.
Dana, 54: household income about $110,000, 22% tax band
The classic version. House worth $600,000, $200,000 still owed, so $400,000 of equity that the paperwork sets against $400,000 in his 401(k). Even trade, everyone says. After 7% selling costs the house side is $358,000, and after 22% tax the retirement side is $312,000. The house side is ahead by $46,000. The two sides would only be equal if her tax rate on withdrawals were about 11%.
Priya, 51: household income about $200,000, 24% tax band
A house worth $1,100,000 that they bought for $320,000 a long time ago, $250,000 left on the mortgage, weighed against $800,000 of retirement money. After costs the house side is $773,000 and the retirement side is $608,000, a difference of $165,000. Priya also has a second problem the others do not: the profit on that house is far above the $250,000 a single filer can exclude, so a future sale has a tax bill attached (IRS Topic 701).
The capital gains trap nobody mentions
While you were married, a couple could exclude up to $500,000 of profit when selling a main home. Alone, that drops to $250,000. The IRS sets both figures, along with the test you have to pass: you must have owned the home for at least 24 months out of the last 5 years, and lived in it as your residence for at least 24 months of the last 5 (IRS Topic 701). Gain above the exclusion has to be reported, and it can be taxed.
For a house bought decades ago in a place where prices ran hard, that halving is a real number. It does not mean keeping the house is wrong. It means the house has a future cost attached that the settlement figure does not show, and the timing of the sale can matter. This is a question for a tax professional before anything is signed, not after.
The question the maths does not answer
Every number above is about what each pile is worth. There is a second question that decides more outcomes: can you carry the house on one income?
A mortgage, property tax, insurance, and repairs do not get smaller because one income left the household. Neither does a roof. Many women win the house in the settlement and sell it within three years anyway, having paid the selling costs, lost the retirement money, and moved twice. That is not a failure of nerve, it is arithmetic showing up late.
The honest way to decide is to answer both questions in order: what is each side worth after tax, and what does my month look like if I keep it. The first is on this page. The second is the retirement runway tool, and it is worth ten minutes before you take a position on the house.
What this comparison leaves out
We compare in today’s dollars and do not grow either side, because both sides grow and guessing which grows faster is how people talk themselves into things. Roth accounts behave differently from traditional accounts, because Roth money has already been taxed. State income tax is not included. Neither is the cost of refinancing the mortgage into your own name, which can be its own obstacle at 55 with one income. And the peace of staying in the house you raised children in is real, it just is not a number, and it is your call what it is worth.
Frequently asked questions
Why is $400,000 in a 401(k) not worth $400,000 of house equity?
Money in a traditional 401(k) has never been taxed, so income tax comes off when it comes out. House equity is money you already own after tax, but you only reach it by selling, and selling costs agent fees and closing costs. Comparing the two before those costs makes one side look bigger than it is.
What are the selling costs you assume?
Seven percent of the sale price, which covers agent commission and normal closing costs. You can be sold without paying that much, and in some places it runs higher. If you are certain you will never sell, the cost never lands, but most people over 50 do sell eventually.
Will I owe capital gains tax if I sell the house?
Often not. A single filer can exclude up to $250,000 of gain on a main home, and $500,000 on a joint return, if you owned it and lived in it for at least 24 months out of the last 5 years. Gain above the exclusion has to be reported and can be taxed. After a divorce you file alone, so the smaller number is the one that applies to you.
Can I afford the house on my own?
That is a separate question from whether the trade is fair, and it kills more settlements than the maths does. Mortgage, taxes, insurance, and repairs on a house built for two incomes do not shrink because one income left. The runway tool is where that question gets answered.
What if I need the retirement money before I turn 60?
Money paid to a former spouse as an alternate payee under a QDRO is on the IRS list of exceptions to the 10% extra tax on early distributions from a qualified plan. Ordinary income tax still applies. This is a decision to take to a tax professional, not a website.
Sources: IRS Topic 701, sale of your home · IRS Topic 558, additional tax on early distributions from retirement plans · IRS Publication 504, divorced or separated individuals · IRS, Retirement topics: QDRO. All fetched and checked September 2026. Nothing here is legal or tax advice.
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