The aggregate divorce rate in the United States has fallen over the past few decades. However, there has been a dramatic increase in the number of gray divorces, which refers to divorces involving individuals who are over the age of 50. Illinois residents who are thinking of divorce may want to know how it will affect their IRA.
The process of splitting an IRA is typically straightforward. However, it can become complicated when accounts have had ongoing 72(t) distributions. This may happen when there are cash flow problems or if a person has retired early and tapped into their IRA before turning 59 and a half years old.
The IRA system was created by the Congress in order to help individuals plan for their retirement years. IRA, 401(k) and 403(b) accounts are tax-deferred retirement accounts. In order to help people use these funds to help them during their retirement years, Congress has set in place rules that are attached to IRAs. Unless certain exceptions exist, IRAs will be subject to normal tax income plus a 10% penalty if they are tapped into early.
Exceptions to the 10% penalty could possibly include distributions for medical expenses, distributions used to pay higher education expenses or distributions that have been used to purchase a person’s first home. Other exceptions may include distributions to beneficiaries after the owner has died or if the owner is considered disabled.
An individual who is considering a divorce may wish to speak to an attorney. It is good for a person to truly understand how ending their marriage would affect their finances and retirement. An attorney may be able to answer questions about splitting an IRA and dividing assets. The attorney may also provide practical assistance, like filing divorce papers or even representing a client in court.