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In a divorce, be sure to treat your retirement plan right

While what to do with your house in Antioch might be your main concern if you are planning to divorce, it is important not to overlook your retirement accounts. These assets might actually be the most vital to your future, especially if retirement is getting significantly closer. In fact, your pension and other retirement accounts could have a higher value than your house.

Since your future depends on those retirement accounts, you should spend some time finding out how your divorce might affect them. The following information might give you an idea about how to handle your retirement accounts during divorce.

What category does each account fall into?

In general, there are two different types of categories that retirement accounts fall into when it comes to dividing them for a divorce. You either have to divide them according to a Qualified Domestic Relations Order (QDRO) or through a "transfer incident to divorce." Individual Retirement Accounts (IRAs) are typically subject to the "transfer incident to divorce" rules while 401(k)s and some other qualified plans fall into the QDRO category.

IRA division

If you have an IRA that will be subject to division, you can transfer the funds to your ex in one of two ways in order to avoid a tax penalty. You can either indicate that moving the funds is a transfer or that it is a rollover. This will largely depend on how you word your divorce settlement. If you fail to indicate that the money movement is a transfer or a rollover, then both you and your ex might end up owing federal taxes and early withdrawal penalties.

Updating your beneficiaries

Once you have contacted the financial institutions that hold your accounts about the divorce settlement and the money changes accounts, it is time to update your beneficiaries. If your ex remains a beneficiary, then she could receive the rest of your retirement benefits.

If you are planning to divorce and you have retirement accounts, it is vital to know how to handle each one. If you do not have the correct documentation or categorize a transfer incorrectly, it could end up costing you.

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