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Ways to protect retirement savings during a divorce

Most people spend the majority of their career waiting for the day they retire. Imagine golfing on the greenest courses in the country or living in a beautiful home on the lake. However, most people also spend the majority of their career saving for their retirement plans.

But divorce often interrupts those plans, and protecting your retirement savings during a divorce proceeding is critical. Luckily, there are a few steps you can take to help keep your retirement funds.

Understand the significance of a QDRO

In Pennsylvania, the court divides all marital property equitably, not necessarily equally. It helps people who have a separate savings account or personal retirement plans keep their funds out of the division process. However, most couples have a joint retirement fund through pension funds and 401(k)s.

The court asks you to fill out a Qualified Domestic Relations Order (QDRO) to divide any qualified retirement plans, including pensions and 401(k)s. The document acts as a guide for distributing the benefits and who receives a specific portion. It allows you to know what is eligible for division and its effects on your current retirement investments.

Consider a plan’s rules

While a QDRO is helpful, it requires you to know the basic guidelines for your retirement account. For example, if you receive your benefits through your employer, they may have specific rules on how and when you can cash out those funds. Unfortunately, most plans have strict regulations, so you need to reach out to your plan administrator or your employer to receive the correct information.

Look into IRAS or Roth IRAs

A QDRO does not cover individual retirement accounts (IRAS) or Roth IRAs. Instead, the court has to evaluate and divide IRAs separately from other joint retirement accounts. If your IRA is eligible for division, the court will consider it a “transfer incident” and craft a divorce decree. It helps establish the future of the IRA and prevent any complications if one spouse withdraws funds early.

The same is true for a Roth IRA, but the Roth IRA and Roth 401(k) is more valuable due to the taxes paid during the period of contribution. If you hold a Roth IRA, it’s best to offer a compromise or a concession to your spouse instead of entirely splitting this specific account.

While these ways will protect the majority of your retirement funds, it is likely you will have to lose some of your retirement savings. To minimize the loss, consult with an experienced law firm, such as [nap_names id=”FIRM-NAME-1″], to ensure the right strategy for your divorce proceeding.

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