Agreements vary among couples just as they do with other assets when it comes to a 403(b) plan, a retirement account that has similarities to a 401(k) for employees in government, education and non-profit organizations.
Here are seven tips on handling the splitting of your account during a divorce:
1. Keep account active: Solutions might include keeping the account active and allowing the spouse to withdraw a portion upon retirement, using the plan as a trade-off for other shared assets, or dividing the plan so the other party receives a satisfying portion.
2. Rolling over: If you decide on dividing your 403(b) account, options include rolling over a portion or all or the account into the spouse's retirement plan or having your spouse withdraw a certain amount. Both parties should make decisions based on the best financial and taxable outcome.
3. Qualified Domestic Relations Order: Your attorney must prepare a qualified domestic relations order, known as a QDRO. This instrument provides the details and instructions on transferring your 403(b) plan according to the divorce agreement. The divorce court judge and administrator of the plan must approve and sign the order so transfers can be take place.
According to QDRO Solutions, LLC, without the QDRO, problems could result that lengthen the settlement process and cost you more money. A spouse might not have a right to any part of the 403(b) plan if the account holder retires, leaves a job where the plan was administered, remarries or dies before the QDRO is submitted.
4. Tax-free transactions: The QDRO also offers protection, including tax-free transactions of the plan following a divorce settlement. Normally, a 10 percent tax penalty would apply for early withdrawals. The transfer process can be done by rolling over money into the spouse's retirement plan or an individual account, such as a traditional IRA or Roth IRA, according to Investopedia.
5. Alternate payee: The spouse receiving funds from your 403(b) plan becomes known as the "alternate payee." Your spouse most likely is discussing your retirement plan with an attorney, so putting it on the table during negotiations helps to reach a satisfying agreement for both parties.
6. Expert advice: Get expert advice from your attorney, financial planner and the plan administrator. A certified divorce planner is knowledgeable about the laws in your state to make sure the plan is divided properly, according to Jacqueline Gold of the Institute for Certified Divorce Planners.
7. Potential value of your 403(b): Take into consideration the potential value of your 403(b) in the future when dividing assets in a divorce. The funds you have in there now could increase significantly in the years ahead, making the 403(b) an important tool when splitting the assets of your marital property.
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Source: Divorce - Google News