Upon reaching a certain age, many individuals give serious thought to the process of retirement. You might have spent a few decades out in the work force and look forward to spending the rest of your days on a beach or closer to family. You have likely been planning for this life event for years, but there are other changes that aren't quite as easy to predict.
Perhaps you've experienced a change in your marriage, whether recently or gradually over time, and the relationship is coming to an end. Divorce can be a stressful and daunting experience both emotionally and financially. While the emotional grief may pass with time, you might want to approach the financial side with caution to avoid potentially devastating consequences concerning retirement assets.
Avoiding unnecessary taxes on retirement funds
When retirement accounts are involved, the division of assets can be exceedingly complex. The amount that your settlement dictates that you give or receive from these accounts could also be subject to taxation if you fail to take certain measures. Some key factors to consider regarding retirement accounts could include the following:
- IRA: When transferring any amount from an IRA to the other spouse, you must classify it as an "incident to divorce" or both spouses could receive a penalty for early withdrawal. The transfer will also require approval from certain parties under this classification, or it will become a normal transfer, and thus be subject to taxes.
- 401k/pension: Similar accounts require a Qualified Domestic Relations Order (QDRO) to avoid taxes and penalties when dividing funds between two individuals. You will have to properly report this order and transfer to the court and the custodians of the account.
- Beneficiaries: You may also want to consider updating or changing the beneficiaries of your retirement accounts. If still listed as a beneficiary, your former spouse will likely receive a portion thereof regardless of what your will states.
Where can I turn for help?
Perhaps you've already made plans regarding retirement, and find yourself wondering how you can preserve your financial future. With the general amount of stress involved in the end of a marriage, you probably also wish to avoid unnecessary consequences regarding taxes.
You could retain the services of an attorney with experience in handling the division of complex assets. A family law attorney in New York can address your financial concerns and wishes and help you pursue the best outcome possible during divorce proceedings. This type of guidance could prove extremely beneficial to placing you back on your desired retirement path.