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What happens to retirement savings during property division?

Saving for retirement is no small feat. Many couples in Louisiana try to start saving as early on in their marriages and careers as possible, but rising costs of living can leave some feeling worried about how stable their financial futures really are. These worries can be compounded by divorce, when couples will have to address retirement savings during property division.

Making early withdrawals from tax accounts is not easy and can result in steep penalties and taxes. In defined contribution plans like 401(k)s, making a withdrawal before turning 59.5 comes with a 10% tax penalty. Rather than avoid dividing this type of account during divorce out of fear of losing money, a judge can issue a Qualified Domestic Relations Order. A QDRO specifies what benefits a person is legally entitled to as part of a divorce settlement.

With a QDRO, divorced individuals can make withdrawals from 401(k)s without incurring a penalty. The withdrawals must be related to the divorce settlement, though. When receiving a portion of the retirement benefits, many people choose to roll the funds over into new retirement accounts. This is not a requirement though, and some people choose to use the money in other ways. Those who do will have to pay the typical 10% tax rate on the money.

Being financially prepared for retirement is important no matter what stage of life a person is in. Concerns over that financial stability can prevent some people in Louisiana from taking important life steps, though. When individuals better understand how retirement is treated during property division, they might feel more assured about seeking a divorce.

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