Using 401(k) assets to pay for expenses during the divorce process can be costly. If you are under 59 ½ years old, you may have to pay income tax and a 10% penalty on the withdrawal. It may be a better option to take a loan against the 401(k) up to maximum of $50,000. But before resorting to raiding any retirement funds, it would be best to consult with a financial professional such as a certified divorce financial analyst who can review your options. Read this article for more information.
There are several financial issues that should be carefully considered during divorce. For example, workplace retirement accounts like 401(k)s and pensions must be divided pursuant to a qualified domestic relations order (QDRO). Also, student loans taken out before marriage and then repaid with marital funds may provide an opportunity to claim a credit when negotiating an equitable distribution of marital assets. This article lists some other important issues.
Splitting retirement accounts pursuant to a divorce requires a separate agreement, a qualified domestic relations order (QDRO). This agreement may cover a 401(k), 403(b) or a pension plan, must meet specific requirements and must be presented to the retirement plan administrator. Although a QDRO is not needed to split IRA assets, the divorcing parties should consider the timing of division to ensure that it does not produce unwanted tax effects. Additional information regarding QDROs can be found in this article.
Divorce requires that you make some important decisions, ones where mistakes will cost you either in lower income or in reduced financial assets. For example, is it better to sell the marital home or keep it in exchange for another asset? Or, is it smarter to take the 401(k) or IRA instead of the taxable account when splitting assets? There are numerous options that must be carefully analyzed so that you make the best decision for your situation. This article notes additional points to consider.
In order to divide qualified retirement assets, such as a 401(k), profit sharing plan, or defined benefit plan, a qualified domestic relations order (QDRO) will be a necessary document. This article explains the tax implications when such a division is made improperly without a QDRO. On the other hand, QDROs are not used to divide an IRA, whether a traditional IRA, Roth IRA, SEP IRA, or Simple IRA. Instead, the divorce decree must specifically lay out the terms for such a division.