Investing in an Individual Retirement Account, which people commonly call an IRA, is one way to help you save money for your post-working years while taking advantage of certain tax rules. That is why preserving as much of your IRA when divorce looms on the horizon is important.
Like other assets, your IRA may be subject to division by a court. Because there are different types of IRAs, dividing your account may differ from how other divorcing couples handle their IRAs. Kiplinger explains some basics to help you understand what you might expect if you must split your IRA.
When to divide an IRA
Like any asset you divide in divorce, your IRA has to be marital property. If you opened your IRA during your marriage, a judge will likely consider it to be a martial asset. On the other hand, if you had opened an IRA before getting married, you might be able to keep all of it, but it depends on whether you had contributed money into it from marital funds. If so, you may have to split the contributions made during your marriage.
How to divide an IRA
If you wanted to divide up certain accounts like a 401(k), you would need a QDRO. This is not the case for an IRA. There are different rules that govern how you split a Roth, traditional or other kind of IRA. However, no matter what kind of IRA you have, you can divide it up through a divorce decree from a court.
There are different ways to divide up an IRA. If you are the owner of the account, you may decide to keep the account active but split off your spouse’s portion. Your spouse may create a separate account to receive his or her share.
Who divides an IRA
If you own the IRA, you have the responsibility of dividing it. You must make sure you comprehend what the court orders you to do regarding your IRA. Other duties include checking the information in the decree for accuracy and supplying any missing information to update the decree. If you and your spouse are on the same page regarding the IRA’s division, you should not have any problems.