Divorce Is Never A Happy Subject
The emotional impact on a family can take months or even years to heal. Another pain that many do not learn about until it is too late is the potentially dangerous effect of divorce on retirement plans and future problems. Folks over 50 who divorce often experience a loss of income that can mean a delay to retire.
Forbes.com pointed out three typical errors among those who are over 50 and divorcing. Common mistakes made by those over 50 who are divorcing that can ruin retirement plans and cause problems.
“I’ll Take The House”
The house we raise children in, enjoy memories and are still comfortable is an emotional asset. Many people opt for keeping the house largely for emotional reasons. Your home is not a sure shot for being a good nest egg. We all learned this during the housing bust a few years ago. Plus, your home can be a costly asset with property taxes, unexpected expenses such a hot water tank replacements, roofing and air conditioners. Be careful not to automatically choose your home in a divorce because you may exchange a feel-good moment for a sound retirement.
Remember The Tax Implications Around Retirement Assets
When negotiating with the soon-to-be-ex, be sure to understand that Roth IRAs and 401(k) are not equal distributions. Withdrawals from the Roth IRA are not taxed during retirement but those from a 401 (k) will be. A Roth IRA will pay more over time because of the tax implications.
Roll Over A Spouse’s IRA Into Your Own
If you are under the age of 59 1/2 at the time of your divorce, you have a one-time opportunity to withdraw money from an ex-spouse’s 401(k) or 403(b) without having to pay the 10 percent early withdrawal penalty as long as those funds have been allocated to you under a qualified domestic relations order (QDRO). If you do a rollover and need to tap the account early, you will have to pay the tax penalty. Avoid the temptation to tap that nest egg early…the tax costs will be high now and the cost to your retirement income will be high later.