Divorce is complex when it involves business and assets. Many things go on during a divorce, and taxes are probably not on people’s minds. People have tax considerations to evaluate during a divorce in Pittsburgh, Pennsylvania. Qualified assets include 401(k)s, IRAs and annuities.
During a divorce, parties need a Qualified Domestic Relations Order to divide 401(k)s and pensions. Every 401(k) plan has rules for how much money a spouse gets. There are several ways people split pensions during a divorce. A spouse can get the entire 401(k) in exchange for an asset with equal value. Dividing the 401(k) is simpler but takes more time. The least desirable way to share a 401(k) is to liquidate the fund to pay a spouse. Rolling over a 401(k) avoids tax liabilities and penalties for a person over 59 1/2.
Dividing an IRA is easier than dividing a 401(k). An IRA is under community property rules, which differ from state to state. An IRA opened during a marriage is a marital asset. Inherited IRAs are separate assets, but IRAs before marriage may be marital assets. The rules for splitting a traditional, SEP, Simple or Roth IRA are consistent. A Roth IRA is tax-free, but all IRA divisions need a divorce decree.
Dividing annuities during a divorce need complicated tax implications and calculations. The parties negotiate how they divide the funds. There are tax consequences, penalties and surrender fees, but the IRS has exceptions for divorces. Drawing up a new contract is the easiest way to divide annuities. A person may sell or surrender annuities to give a part to their spouse.
There are set rules and contracts for certain retirement assets when dividing them. Each state has rules when dividing pensions, annuities and IRAs. Divorce complicates assets, and tax advisers may help. Dividing qualified assets is methodical but can help both parties.