How to Rollover Retirement Assets

Retirement assets are often one of the substantial assets in a marital estate. It is possible to do a tax-free rollover of retirement benefits as part of a divorce. First, you will need to know what kind of benefits are involved. Qualified benefits will require a Qualified Domestic Relations Order (QDRO) to achieve the tax-free rollover. Qualified plans include defined contribution plans such as 401K as well as defined benefit plans such as pensions. Federal retirement plans (e.g. CSRS, FERS, TSP) also require a court order to achieve the rollover however the appropriate order for federal plans is a Court Order Acceptable for Processing (COAP). Once the QDRO or COAP is drafted to dictate the percentage or fixed amount to be rolled over, it is signed by the parties and then the Judge prior to submission to the plan for execution.

Non-qualified plans, most notably IRAs, do not require a specific order to do a rollover. Often, just a copy of the settlement agreement or Order and copy of the Divorce Decree may be sufficient to complete a rollover. It is important to make sure the rollover is direct to ensure it is tax-free. If the funds are instead withdrawn with the intention to re-deposit into the other party’s account, there will be a 20% tax withholding on the withdrawal in addition to any early withdrawal penalties that may be applicable. It is also a good idea to make sure the rollover is done promptly after the divorce. As the party receiving funds via rollover, be careful as to how you elect to receive distributions once the funds are in your account. Similar, tax and any applicable early withdrawal penalties will apply to you once accessing the funds.

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