Retierment Accounts - Distribution
Retirement Accounts are often a very large portion of a couples savings and marital assets. These assets are considered part of the equation for equitable distribution. It does not matter whether it is in a 401 or an IRA or any other account designation. If it is there it is an asset to be divded.
Withdraws of the money in a retirement account would usually cause huge tax consequences. So the question is how do retirement accounts get distributed under equitable distribution without losing a large portion of the money to taxes? There are two very bacis ways to distribute marital retirement accounts without tax consequences.
Retirement Accounts - Substitution
One of the easiest ways is a substitution for the asets within a retirement account. This simply means that if both parties have their own retirment accounts, they agree to each party keeping their own. If there is a difference in value, one is worth $50,000 and the other is worth $60,000, the person with the larger value would eaither buy out the other party for 1/2 of the difference, $5,000. This buy out could be by cash or some other distribution. If only one person has the account the solution is the same.
Retirement Accounts - QDRO
"Qualified Domestic Relations Order" (QDRO) is another solution to the tax problem. The only downside is that there is some costs associated with it. A QDRO is simply a Court Order instructing the Administartor of a retirment account to transfer a certain amount from one account to another account. The IRS does not view this as a taxable event
