Dividing up your retirement accounts and pensions is something you are probably nervous about in your divorce, but with the right actions, you may come out of your divorce with enough assets to help you enjoy a good retirement. If you have put money away in an IRA, now is the time to learn how to divide it without incurring any unnecessary losses.
The Motley Fool describes three aspects of dividing an IRA that may prove useful if you need to split an IRA account with your spouse in a divorce.
An IRA does not require a QDRO
Some retirement accounts require you to go to court and get a Qualified Domestic Relations Order in order to divide them up. Otherwise, you could incur penalties for taking money out of an account before a certain date. A common example is a 401(k). However, this is not the case for an IRA. Your divorce settlement will mandate how to divide your IRA account.
You may set up another IRA
To split an IRA, you must work out how to divide the money. You or your spouse may decide to keep the existing IRA while the other spouse receives a new IRA in his or her name. After creating the new IRA, you would move the funds from the existing IRA into the new one. By the end of the process, each of you should have your own IRA account.
You must not distribute the IRA funds
Just because you can use your divorce settlement to divide your IRA does not mean that you will not incur penalties and taxes. It is important to use the correct means to divide your IRA. When you move the funds to another IRA, you must do so as a transfer and not as a distribution. Otherwise, the government may interpret your action as taking the IRA funds prematurely and impose penalties.
Given the complex nature of dividing retirement accounts in divorce, you should consider every detail, no matter how small it may seem, so you emerge from the process without the heartache of losing unnecessary amounts of your retirement money.