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Mistakes to avoid when dividing a retirement account

When a couple in Missouri is getting a divorce, it might be necessary to make distributions from a retirement account as part of the divorce settlement. If the account is an IRA, this is fairly straightforward although the couple will still need to observe certain regulations such as rolling the distribution into another IRA in order to avoid paying taxes and penalties. If the retirement account is a 401(k) or a pension plan, the process is more complicated.

The couple will need a document known as a qualified domestic relations order, and this will need to be carefully prepared by an attorney and approved by a plan administrator. Its contents must be consistent with the information in the divorce agreement regarding the division of the retirement account. This division is best expressed in percentages instead of dollar amounts because the account's value may fluctuate. If there is more than one account, each account will need a separate QDRO.

A person who expects to receive a distribution from a spouse's retirement account should not agree to be removed as beneficiary on the account unless the divorce is final. Otherwise, if the spouse dies before the divorce is final, the person might get nothing from the account.

A retirement account is only one part of property division. There might be other assets the couple needs to divide as well. Among these might be a house and a bank account. In some cases, a couple might want to simplify the process by each keeping assets of roughly equal value. For example, instead of dividing the retirement account, the other person might keep the home or the bank account. However, if there are costs associated with the asset, such as the payments, insurance and upkeep necessary on a house, individuals should make sure those costs are affordable on a single income.

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