Dividing retirement assets in a Pennsylvania divorce is complicated. These assets have an uncertain future value and occasionally an uncertain current value. Tax problems may happen if the money is taken out too early. But leaving the assets be may tie you to your ex-spouse for a long time. With 401Ks, here are some major options under the law.
Roll the 401K into an IRA
You can take the original account and transfer it into two IRA accounts. Doing this, you can avoid tax penalties for taking money out of the original account. Still, this option is only available if you are 59 ½ years old or have already left the employer.
Divide the 401K
This approach divides the worth of the 401K in half and gives control of each half to a different party to the divorce. This seems easy, but it can get complicated if the 401K is invested in a variety of different funds. However, the money does not leave the account, so taxes are generally not a problem.
One spouse gets the 401K, the other gets an asset of equal value
This option seems easy on the surface but gets complicated when you realize the 401K is not only its current value but also its incompletely known future value. Figuring out a fair worth can take some careful calculations. Taxes may also become tricky.
Liquidate the 401K and split the assets
You can sell the 401K outright and split the money equally. While the easiest choice, this is also the worst. First, you will pay taxes on the money withdrawn from the 401K. Second, you sacrifice future potential gain for present ease.
When dealing with complex assets, it is best to talk with a lawyer and a divorce financial planner. Both people will have insight into which approach works best in your situation. Often the easiest solution is not the best. Both experts can navigate difficult solutions.