Protecting the ability to retire after divorce

On behalf of Stange Law Firm, PC posted in family law on Tuesday, September 12, 2017.

When Missouri couples want to get divorced, it is important for them to think about their future abilities to retire. Retirement accounts must also be divided between the spouses in an equitable manner, but the division of the accounts may require special considerations and paperwork.

As an example, if a couple has $20,000 in a Roth IRA and $20,000 in a 401(k), it is important to remember that the contributions to the Roth IRA have already been taxed upfront. The contributions that have been made to the 401(k) will be taxed when they are withdrawn, meaning that the $20,000 balance in the 401(k) is worth less than the balance in the Roth IRA.

Some types of accounts require special orders called qualified domestic relations orders. These orders direct the custodians of these plans to divide the assets and tell them how much should be paid to the recipients. If spouses withdraw money during their divorces and without these orders, they will have to pay the 10 percent early withdrawal penalties if they have not reached age 59 1/2.

Dividing assets such as retirement accounts should be undertaken with care in order to avoid potential tax consequences. If the withdrawals are made incorrectly or too early, the account owners may be forced to pay substantial penalties and taxes. People may benefit from talking to their divorce attorneys about their future retirements. Attorneys may advise their clients how they might make adjustments following their divorces so that they can retire on time. They may also help to draft the QDROs that will be needed to divide qualified plans and review the court’s orders for the division of IRAs to make certain that they comply with the guidelines of the Internal Revenue Service.

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