For Massachusetts couples over the age of 50, divorce can look very different than a split that occurs when a couple is in their 20s or 30s. Whereas emotions often run high in younger couples, those in relationships that span several decades often feel they have grown apart from their partner. They prefer to go their own way, and the break is amicable. We frequently represent clients who need help ensuring equitable distribution of retirement accounts in a divorce.
According to Kiplinger, following the rules for dividing retirement accounts is essential. Penalties and the tax bill can be costly if you make a mistake. If you and your partner are high earners, you may have multiple pensions, IRAs and 401(k)s that are part of the marital property. Even if you both prefer to split a plan down the middle, it is typically more complicated than that.
401(k)
When addressing a 401(k) and pension, you must submit a qualified domestic relations order to each plan’s administrator. The QDRO is a judicial decree that recognizes your spouse’s right to receive a portion of your qualified plan. With the 401(k)s, you get a one-time divorce-related break. Although you owe taxes on what you take out, there is no penalty for taking an early withdrawal.
Pension plans
Each plan may have different rules regarding whether you can split it and how. Setting the terms can come once a professional evaluates its value. This process can take two to three months.
IRAs
Once you decide how to split the IRAs, detail it in the divorce decree and submit it to each account’s custodian. Unlike a 401(k), you pay fees and the early-withdrawal penalty if you are under 59 1/2 years of age.
Achieving an equitable distribution of assets is especially complicated when dealing with retirement and related plans. You may decide to trade off assets from an investment account or other financial instruments rather than split the plans. Visit our webpage for more information on this topic.