Understanding different types of retirement assets, and the costs and taxes associated with each, when liquidated, can help you make informed decisions. Always consult with your financial and tax advisors during the decision making process especially before a liquidation.
To help ensure that you reach an agreement that is equitable to both of you, it’s important to know what you have now and understand how your agreement could impact your income, and lifestyle years after the divorce. You can’t direct the investment process for social security but you should be overseeing and getting advice about your IRA’s.
To understand their value, you need to know how withdrawals will be taxed from both traditional and Roth accounts. In a traditional account, contributions are made before taxes, so you get a tax deduction for the amount contributed if it has already been taxed. Contributions to a Roth account are made after taxes are paid but withdrawals of earnings and contributions in retirement are not taxed. We, of course, might see more changes to the tax code.
As an example, right now, $100,000 currently in a Roth account is worth more than $100,000 currently in a traditional retirement account simply because of the different tax treatments in each type of account.
This can be really complicated, especially when you have to deal with corporate 401K accounts. If this is something that needs attention in the life of your family and you need a suggestion please call the office and we’ll be happy to talk with you about some professionals we trust.