If you prepare for a divorce later in your life, you should have an idea how you will divide up your retirement accounts. Losing too much of your retirement assets could upend your retirement plans and force you to work for longer than you intend to.
Kiplinger goes into some detail regarding the division of assets in a gray divorce. Here is a look at some questions you should ask before you try to split up your retirement accounts.
Do I need a QDRO?
It is possible your retirement accounts require a court to authorize a qualified domestic relations order to divide them with your spouse. For instance, couples often use QDROs to split a 401(k) plan. However, you do not always need a QDRO. If you possess an IRA, you may use your divorce settlement to set the terms for dividing it.
Will I pay taxes on my share?
It is important to know whether or not you will incur taxes on any share of a retirement plan you receive. If you take money from a Roth IRA, you will not owe taxes on it because Roth IRA funds are after-tax contributions. By contrast, people often pay taxes on money received from a traditional 401(k).
Likewise, you may owe taxes if you receive a share from an IRA, plus you will pay an early withdrawal penalty if you are younger than 59 and a half years old. However, you could avoid taxes by rolling your share into your own separate IRA.
Given that circumstances vary by couple, you should be aware of any specific issues that pertain to your divorce. Still, these questions are a good place to begin planning the division of your retirement assets.