401(k) vs. House Divorce Calculator: What's Each Asset Really Worth?

"You take the 401(k), I'll keep the house" is one of the most common divorce settlement proposals — and one of the most misunderstood. A $500,000 401(k) and $500,000 in home equity are not worth the same amount after tax. The retirement account is taxed as ordinary income every time you withdraw it. The home equity may be partially sheltered by the §121 exclusion, but the exclusion drops from $500,000 (married) to $250,000 (single) the moment you're divorced. Model your actual numbers below.

Why Face Values Are Misleading

The retirement account is a pre-tax asset

A traditional 401(k), 403(b), or IRA balance is fully pre-tax. Every dollar you withdraw is taxed as ordinary income — the highest federal rate, not the preferential LTCG rate. At a 24% federal marginal rate, $500,000 in pre-tax retirement funds yields only $380,000 after tax. At 32%, it yields $340,000. The face value overstates what you actually keep by $120,000–$160,000 depending on your bracket.

The §121 exclusion drops in half when you divorce

While married and filing jointly, you and your spouse can exclude up to $500,000 of capital gain on the sale of your principal residence if you both meet the ownership and use tests (2 of the last 5 years).¹ Once you're divorced and filing single, that exclusion drops to $250,000. If your home has appreciated substantially — a $750,000 home purchased for $350,000 has a $400,000 gain — the difference between MFJ and single exclusions alone is $37,500 in federal LTCG tax (at 15%).

The §1041 carryover basis trap

Under IRC § 1041, transfers between spouses incident to divorce are not taxable — the transfer is treated as a gift. This means you take the home at your spouse's original purchase price basis, not at the fair market value at divorce.² If your spouse bought the home for $300,000 and it's now worth $900,000, and you receive 50% as part of the settlement, your embedded gain is $300,000 — not zero. The calculator above uses the original purchase price to compute this correctly.

Five factors that shift the analysis

• Time horizon. A 55-year-old taking a 401(k) will pay tax over 20–30 years of withdrawals at their marginal rate each year. A 55-year-old who sells the home immediately realizes the LTCG in one year — potentially at a higher effective LTCG rate.
• Your post-divorce income. If your income drops significantly after divorce, you may fall into a lower withdrawal bracket — increasing the 401(k)'s after-tax value. Conversely, a large home sale can push capital gains into a higher bracket in a single year.
• Roth vs. traditional. Roth accounts (Roth 401(k), Roth IRA) are after-tax — no income tax on qualified withdrawals. The calculator above models pre-tax accounts only. A $500,000 Roth is worth its full face value; a $500,000 traditional 401(k) is worth $340,000–$390,000.
• IRMAA exposure. A large capital gain from selling the home in the year of or after divorce can spike your MAGI and trigger Medicare IRMAA surcharges two years later. In 2026, the first IRMAA tier starts at $109,000 MAGI (single), adding $82.00/month to Part B premiums. This doesn't appear in the calculator above but can matter for post-50 divorces.
• Net equalization vs. face-value splits. The cleanest settlements use after-tax equivalency — the goal is equal after-tax value, not equal face values. A CDFA-credentialed advisor builds this equivalency analysis and presents it to the attorney and mediator with supporting numbers.