People saving for retirement often use specialized accounts to gain certain legal and financial advantages. A 401(k) associated with a professional’s job may allow them to set aside a certain portion of their income each year for their comfort during their golden years. They may receive contributions from their employers to match what they saved.
People who save using 401(k)s and similar accounts can reduce their taxable income for the year by making regular contributions. They can withdraw the funds to use to augment pensions and Social Security benefits after they retire.
Any early withdrawal from a tax-deferred retirement savings account is likely to trigger penalties. People also have to report those funds as income for the year and then pay taxes on them. Is it possible to divide retirement savings accounts without losing funds to taxes and penalties?
The right document makes a big difference
Some spouses can settle property division matters without directly dividing their savings. Other times, there may not be other assets to effectively offset the value of a 401(k).
If the best solution is to split the account, spouses can have an attorney draft a qualified domestic relations order (QDRO). This document reflects the terms set in the property division order and requires approval from the courts and signatures from both spouses.
When signed and submitted as necessary to the right party, a QDRO can eliminate the threat of Texas and penalties. Spouses can preserve their savings and begin rebuilding after the divorce.
Knowing the right steps to take to preserve resources can be beneficial for those preparing for the division of valuable assets. The appropriate division of retirement accounts can help people rettain as much of their money as possible.
