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Californians who are divorcing and who have retirement accounts need to take care to protect their savings . Making simple mistakes may expose people to significant tax liability and prevent them from retiring on time.
People should avoid paying for their divorces by taking money out of their retirement accounts. If people withdraw money from their 401(k)s before reaching age 55 or from their IRAs before reaching age 59 1/2, they will have to pay taxes on their withdrawals as well as 10 percent penalties to the IRS.
Some people also fail to consider taxes when they are valuing retirement accounts. A Roth IRA with a balance of $100,000 is worth $100,000 because the contributions were taxed upfront. A 401(k) with a similar balance is not worth as much because the contributions were made on a pre-tax basis. People must also use the correct forms when dividing the assets in retirement accounts in order to avoid the early withdrawal penalties and taxes. Recipients should avoid the temptation to withdraw the portions that they receive and should instead roll them over into their own retirement accounts. They may otherwise have to pay substantial amounts of taxes.
The property division portion of high-asset divorces may be extremely complicated. People who are getting divorced after spending years accumulating assets may benefit by getting help from experienced family law attorneys who can help their clients to minimize the taxes that they might have to pay and to make financially savvy decisions during their divorces. The attorneys may advise their clients about different steps that they might take to protect their abilities to retire in the future.
We represent clients in Orange County and Southern California in all types of family law matters involving divorce, mediation, property division and issues involving children. Call our Fullerton office at 714-680-9777 or use our online contact form to schedule a free consultation. We ensure a 24-hour response to all inquiries.
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