Will getting divorced wreck my retirement plans?


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Understanding Divorce and Retirement Accounts

Getting divorced can cause both emotional and financial upheaval for everyone involved. One of the most important questions you and your soon-to-be former spouse may have to decide centers on how to divide retirement assets.

Understanding the key issues around divorce and retirement can make it easier to untangle them as you bring your marriage to a close. (Learn more aHow Many Credit Cards Should I Have?).

Taking Note of Your Retirement Accounts

The average cost of divorce can range from several hundred to several thousand dollars, so it’s important to know what’s at stake financially. Managing retirement accounts in divorce starts with understanding what assets you have.

There are several possibilities for saving money toward retirement, and different rules apply when dividing each. Here’s a look at what types of retirement accounts you may hold and thus will need to consider in your divorce.


401(k) plan is a defined contribution plan that allows you to save money for retirement on a tax-advantaged basis. Your employer may also make matching contributions to the plan on your behalf. According to the Census Bureau, 34.6% of Americans have a 401(k) or a similar workplace plan, such as a 403(b) or Thrift Savings Plan.


Individual retirement accounts, or IRAs, also allow you to set aside money for retirement while enjoying some tax benefits. The difference is that these accounts are not offered by employers. There are several IRA options, including:

  • Traditional IRAs, which allow for tax-deductible contributions.
  • Roth IRAs, which allow for tax-free withdrawals in retirement.
  • SEP IRAs, which follow traditional IRA tax rules and are designed for self-employed individuals.
  • SIMPLE IRAs, which also follow traditional IRA tax rules and are designed for small business owners.

Each type of IRA has different rules regarding who can contribute, how much you can contribute annually, and the tax treatment of contributions and withdrawals.

Pension Plan

pension plan is a type of defined benefit plan. The amount you can withdraw in retirement is determined largely by the number of years you worked for your employer and your highest earnings. That’s different from a 401(k), since the amount you can withdraw depends on how much you (and your employer) contribute during your working years.

How Are Retirement Accounts Split in a Divorce?

How retirement accounts are split in divorce can depend on several factors, including what type of accounts are up for division, how those assets are classified, and divorce laws regarding property division in your state. There are two key issues that must be determined first:

  • Whether the retirement accounts are marital property or separate property
  • Whether community property or equitable distribution rules apply

Legal Requirements for Dividing Assets

Marital property is property that’s owned by both spouses. An example of a tangible marital property asset is a home the two of you lived in together. Separate property is property that belongs to just one spouse.

In community property states, spouses have an equal share in assets accrued during the marriage. Equitable distribution states allow for an equitable — though not necessarily equal — split of assets in divorce.

You don’t have to follow state guidelines if you and your spouse can come to an agreement yourselves about how divorce assets should be divided. However, if you can’t agree, then you’ll be subject to the property division laws for your state.

If retirement assets are to be divided in divorce, there are certain steps that have to be taken to ensure the division is legal. With a workplace plan, you’ll need to obtain a Qualified Domestic Relations Order (QDRO). This is a court order that specifies how much each spouse should receive when dividing a 401(k) or similar workplace plan in divorce.

IRAs do not require a QDRO. You would, however, still need to put in writing who gets what when dividing IRAs in divorce. That information is typically included in the final divorce settlement agreement, which a judge must sign off on.

Protecting Your 401(k) in a Divorce

The simplest option for how to protect your 401(k) in a divorce may be to offer your spouse assets of equivalent value. For example, if you’ve saved $500,000 in your 401(k) and you jointly own a home that’s worth $250,000, you might agree to let them keep the home as part of the divorce settlement.

If they’re not open to the idea of a trade-off, you may have to split the assets through a QDRO. That could make a temporary dent in your savings, but you might be able to make it up over time if you continue to make new contributions.

You could skip the QDRO and withdraw money from your 401(k) to fulfill your obligations to your spouse under the terms of the divorce settlement. However, doing so could trigger a 10% early withdrawal penalty if you’re under age 59 ½, along with ordinary income tax on the distribution.

Protecting Your IRA in a Divorce

Traditional and Roth IRAs are subject to property division rules like other retirement accounts in divorce. Depending on where you live and what laws apply, you might have to split your IRA 50/50 with your spouse.

Again, you might be able to protect your IRA by asking them to accept other assets instead. Whether they’re willing to agree to that might depend on the nature of those assets, their value, and their own retirement savings.

If you’re splitting an IRA with a spouse, the good news is that you can avoid tax consequences if the transaction is processed as a transfer incident to divorce. Essentially, that would allow you to transfer money out of the IRA to your spouse, who would then be able to deposit it into their own IRA. (Learn more at Is It Possible to Get an IRA Loan?).

Divorce and Pensions

Pension plans are less common than 401(k) plans, but there are employers that continue to offer them. Generally, pension plan assets are treated as marital property for divorce purposes. That means your spouse would likely be entitled to receive some of your benefits even though the marriage has ended. State laws will determine how much your spouse is eligible to collect from your pension plan.

Protecting Your Pension in a Divorce

The best method for protecting a pension in divorce may be understanding how your pension works. The type of payout option you elect, for instance, can determine what benefits your spouse is eligible to receive from the plan. It’s also important to consider whether it makes sense to choose a lump-sum or annuity payment when withdrawing those assets.

If your spouse is receptive, you might suggest a swap of other assets for your pension benefits. When in doubt about how your pension works or how to protect pensions in a divorce, it may be best to talk to a divorce attorney or financial advisor.

Opening a New Retirement Account

Splitting retirement accounts in a divorce can be stressful. It’s important to know what your rights and obligations are going into the process. If you’re leaving a marriage with less money in retirement, it’s a good idea to know what options you have for getting back on track. That can include opening a new retirement account.

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
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Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.

Smart financial strategies for Boomers worried about retirement

Smart financial strategies for Boomers worried about retirement

As you approach retirement, are you getting nervous about how much you’ve saved – or haven’t saved – to live comfortably for the rest of your life after you retire? If you’re worried you haven’t saved enough for retirement, you’re not alone.

Around 22% of Americans have less than $5,000 saved for retirement, 15% have no savings at all, and more than half (56%) of Americans don’t even know how much they’ll need to retire comfortably, according to Planning & Progress 2019, a study by Northwestern Mutual

Your future doesn’t have to be all doom and gloom, though. Even if you’re behind on saving for retirement, it may not be too late to create a better retirement for you and your family.

Keep reading for six last-minute strategies to add to what you’ve got or make the most of what you already have.

For help with your retirement planning, consider working with a fiduciary financial advisor. Find an advisor who serves your area today (Sponsored).

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Once you’re 50 years of age or older, you can start making “catch-up contributions” to some retirement accounts to increase retirement savings. Catch-up contributions up to $6,500 annually in 2020 may be permitted on 401(k) (other than a SIMPLE 401(k), 403 (b) or SARSEP plans.

You’ll have to comply with other IRS catch-up contributions, too. IRA annual catch-up contributions are limited to $1,000 until 2020. A SIMPLE IRA or a SIMPLE 401(k) plan may permit annual catch-up contributions up to $3,000 until 2020.

TimArbaev / istockphoto

If you’re not taking advantage of your employer’s 401(k) match, you’re throwing away free money you could squirrel away for retirement. Even if you’re already participating in your company’s 401(k), consider increasing your contribution to meet the annual limit of your employer’s match contribution.

That way, you can build retirement savings at a faster pace, with your employer’s assistance.


Not everyone is comfortable with taking more risk with their retirement account’s asset mix. However, if your retirement savings is not on track to offer what you’ll need to meet retirement goals, it may be time to think about increasing risk to get a higher return on investments.

Talk to your financial advisor or retirement planner to find out if adjusting your retirement account investment asset mix may help boost your retirement savings balance.

William_Potter/ istockphoto

Few people want to work for the rest of their lives, but not everyone is financially able to retire at the traditional retirement age of 65. Maybe you once planned to retire at an even younger age but are having second thoughts due to the rising cost of premiums you’ll pay before Medicare kicks in at age 65. Working longer may be the answer to your retirement savings quandary.

One reason to wait to retire is that the longer you delay collecting social security benefits, the larger the check you’ll receive each month. If you have health insurance through an employer, that’s another argument for delaying retirement, since health insurance could be a costly expense. Working a year or two longer also gives you more time to add to retirement savings.

istockphoto / Ridofranz

Cutting expenses is no fun, but neither is an impoverished retirement. What if you cut back now on a few luxuries and other expenses that your current income allows so you could sock away more every month for retirement savings? For example, you may be able to cut your grocery bill in half by shopping at a discount grocer or using coupons.

How much would you save if you got rid of cable and subscribed to a couple of streaming services instead? What if you got one massage a month instead of two or went an extra week between haircuts? Commit to taking any money you’d have otherwise spent and depositing it in savings instead.

Ljupco / istockphoto

The retirement income you’ll need to barely squeak by in one city may allow you to live far better in a town or city with a lower cost of living. If you want your retirement savings to stretch further, think about moving to a more affordable region.

For example, the most expensive areas in the U.S. to live are Hawaii, Alaska, the Northeast and the West Coast, according to the third-quarter composite cost-of-living index at the Missouri Economic Research and Information Center, where you’ll find the annual cost of living in each state. The least expensive regions are Midwest and Southern states.

Tips for retirement planning

Need help planning for retirement? You can use free retirement calculators to help you start planning at any age. 

Additionally, a financial advisor can help you work out the details of your retirement plan. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now. (Sponsored)

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