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.
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When It Comes to Divorce, Avoid These Very Costly Mistakes
The Wrong Way to Split an IRA in a Divorce
There are some special considerations for splitting IRAs pursuant to a divorce. Unlike qualified retirement plans, you do not need a qualified domestic relations order (QDRO). However, the split must be addressed by a divorce decree. If an IRA is split before the divorce decree is issued, you can be subject to taxes and penalties. Have a look at this article for more information.
Getting Divorced? How to Avoid Tax Pitfalls When Splitting Up Retirement Accounts
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.