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What to know about splitting a 401(k)

When a couple divorces in Denver, there are often many different financial decisions that need to be made, including what to do with retirement accounts. With the rise of divorce among people 50 and over, these accounts are especially important to those close to retirement age. Different rules apply to different types of accounts. Here are the most important aspects to consider when dividing up a 401(k) account.

As with any other aspect of a divorce, things will typically go much smoother if the parties can both agree on an outcome. Smart Asset points out that this option will save time and money. However, for many couples that is simply not possible, in which case it may come to the court to decide how the account will be divided.

One person’s share can be cashed out at the time of the divorce, although this will result in fee and penalty charges. The parties could also choose to leave the money in the account until the owner account actually retires and then distribute it. Another alternative would be to transfer one person’s share into a separate retirement account, which will not result in the assessment of any penalties. Regardless of what option is chosen, a judge will need to sign a Qualified Domestic Relations Order confirming what each spouse is entitled to receive.

Bloomberg cautions, however, that there often fees charged by plan administrators for processing a QDRO. These fees can range from a few hundred dollars to a few thousand dollars, depending on the firm that is handling the plan and the individual situation.

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