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How you split up retirement accounts matters

If you're ready to file for a divorce, you probably already know that you'll need to split some of your assets. If you have retirement accounts, those will likely need to be split between you and your spouse as well. How you split them will depend on your situation, but these are a few things you need to know.

Done incorrectly, splitting a retirement account can lead to fees and tax implications you may not be prepared for. Depending on the type of plan you have, the rules that apply to it and other factors, you could be left facing serious financial implications.

With an individual retirement account, your attorney will need to help you create a transfer that is incident to divorce. This needs to happen within a year of your settlement, but if done right, won't lead to any extra tax implications. If not sent correctly, the money comes out of the account and is treated like normal income for tax purposes.

If you have a qualified retirement plan, then you can transfer the plan with a qualified domestic relations order. This is a tax-free transaction, but you need to report the transaction to the IRA custodians and courts in the correct manner after it's been finalized. If you don't define the transfer correctly, you could face taxes on the amount or have to pay penalties.

Our website has more information on how assets like homes and retirement accounts can affect your divorce. With the right negotiation tactics, you can work to protect your retirement and keep as many of your marital assets as possible.

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