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Property division may require splitting IRA funds

As Kentucky workers spend their years stashing money away for retirement, they may daydream about what they will do with those funds. Though these dreams may become a reality for many people, others may find themselves losing a portion of their IRA funds during divorce. Property division proceedings could easily dictate that a soon-to-be ex-spouse is entitled to at least some of that money.

Though individuals may feel the pain of having to reduce their IRA accounts in the first place, they could also face additional troubles if they do not transfer the money properly. Early withdrawal and incorrect transfers could lead the account holder to face penalty fees as well as taxation on the funds, even if they are no longer in the account. Therefore, parties may want to closely consider their options for making transfers.

If a person must give a portion of an IRA to an ex-spouse, that individual may want to directly transfer the money to an IRA held in the ex's name. By taking this action, the person will avoid having to deal with taxation. However, taxation on those funds will take place if they are transferred from an IRA directly to a checking account.

It is possible for individuals to negotiate during the property division process in hopes of retaining their retirement funds. If that is not the case, parties may want to use their divorce decrees to detail who will be responsible for any charges or taxes on transferred retirement funds. Kentucky residents concerned about their retirement accounts and other assets during divorce may wish to gain more information on their options.

Source:, "When your clients divorce, avoid this costly IRA mistake", Ed Slott, May 15, 2018

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