Tax effecting retirement


#1

In our separation my husband’s attorney is insisting on tax effecting his retirement account before giving me my quote of it (i.e. taking into account how much taxes he would have to pay on it when he starts taking it out at time of retirement and using that estimate amount to deduct from what he would owe me). My previous attorney told me there are Supreme Court cases saying the court will not speculate on the future so they are just plainly worn. I am still don’t understand how his attorney can be so insistent in doing it.
Also, is QDRO the only way to avoid any tax adverse effect on retirement accounts or could he just plainly move my half of his retirement account onto my IRA? He has a 403(b) and I have only a traditional IRA.
Can I prepare my own QDRO if so?


#2

You could agree to divide the retirement account that way in a separation agreement for example but it is likely not in your best interests since it is speculative. This is not common. The typical/standard way to divide a retirement account is to look at the full marital value without considering taxes and/or penalties.

A QDRO is the only way to divide a 401(k), 403(b), etc. such that the transfer itself is tax-free and without penalties. A QDRO is a court order that directs the plan administrator to take funds from one spouse’s retirement account and deposit them in an account for the other spouse. Your husband would incur significant taxes and penalties to withdraw the money without a QDRO.

QDROs are very specialized documents and it would not be advisable to draft your own.


Anna Ayscue

Attorney with Rosen Law Firm Cary • Chapel Hill • Durham • Raleigh • Wake Forest

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