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Retirement accounts and divorce: Know the options

When you are going through a divorce, you might have retirement investments or pension plans that demand attention. Dividing these can be a complex undertaking, so you must ensure that you know exactly what you need to do, so you can receive your portion of these assets.

One of the most important things that you need in these cases is a qualified domestic relations order (QRDO). This is a document that sets the terms of the pension or retirement account division and gives the administrator over the account the instructions and ability to make it happen.

The QDRO is critical because it can prevent the 10% early withdrawal fee from having to be paid when the funds are divvied up. When there is any single mistake in this document, you might end up having to pay that fee.

Only a judge can issue a QDRO. In order for it to be effective, it has to include the identifying information, including the mailing address of the plan owner and the payee. The method of division, including the number of payments, the total percentage and the way the payments must be made all need to be stated clearly in the order.

When the QDRO is sent to the plan administrator, that person will let the parties know if they need to do anything else. They will also provide information about when the order will be carried out, and everything will be finalized.

If your property division will include a QDRO, be sure you understand what you can do with the assets. If you opt to just keep it, you will owe taxes on it. If you roll it over to a qualified retirement account of your own, you might not owe taxes right away. Be sure to find out all the options and determine what is best for your needs.

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