Tax Planning for Divorce (Part 8-Retirement Funds)
Guest Post by John Ellsworth, Esq.
Handle your retirement savings with care in a divorce as this is a very tricky area. If you cash out a 401(k) plan to give the money to your ex, for example, the IRS considers that a taxable distribution and you’ll be stuck paying the tax. The way to avoid this pitfall is to have the transfer made pursuant to a qualified domestic relations order (QDRO). Such an order gives your ex the right to the funds and relieves you of the tax burden.