If your marriage has lasted a while, your spouse has probably accumulated money in one or more retirement accounts. So during your divorce, dividing up the accounts using a qualified domestic relations order could be one of your priorities.
A QDRO is a court order used to split different kinds of retirement accounts. Should you use a QDRO, you have various options to receive your share of the retirement money.
Get your money upfront
If money is a particular worry, you might opt for a lump sum payout. While this could be a benefit if you need cash quickly, retirement accounts generally have a threshold to meet in order to draw on the account without incurring taxes. Depending on the account, you may end up with a tax bill upon getting your payout.
Put your money in an annuity
One way to ease your tax burden is to not draw on your retirement funds right away. Some people put their retirement funds in an annuity and stagger future payouts. You may still pay taxes on the payouts, just not as much as you would have with a full payout.
Keep your money in an account
Some people transfer their share of an account into a separate individual account. For example, retaining a 401(k) in your name will let you keep your share and grow it with additional contributions until you reach 59 and a half years old. This will help you avoid tax penalties due to premature withdrawals.
Remember that divisions of retirement accounts vary by couple. Examine possible tax consequences carefully to help you best decide how to receive your share of retirement funds.