Roth IRA in Oregon Divorce Mediation
What to Know About a Roth IRA in an Oregon Divorce
A Roth Individual Retirement Account (Roth IRA) is a retirement account not offered as a benefit of one's employment.* Unlike a traditional IRA, a Roth IRA is funded with after-tax dollars. As long as you wait until normal retirement age (59 1/2) to withdraw the funds, the growth in a Roth IRA can be withdrawn tax-free. Please note that this page addresses only Roth IRAs. Traditional IRAs have their own page.
Matthew House's mediation clients who own one or more Roth IRAs typically do one of three things:
- The account holder keeps 100% of the account; the other spouse receives an asset of equal or similar value.
- A portion of the Roth IRA is transferred to the other spouse's Roth IRA.
- The account holder withdraws the contributions (which can be withdrawn tax-free at any time) and transfers a cash sum to the other spouse, possibly also supplementing it with another asset from the marital asset pool if there is not enough cash from the contributions to make the division equitable if based only on the Roth IRA.
There are several other options that are possible but not favorable, which Matthew will discuss in mediation and in other sections of this page.
Discovery: What information do you need about your Roth IRA for divorce mediation sessions?
- Most recent account statement
- Current beneficiary or survivorship designations
- Transfer forms from the trustee or plan administrator
- Any other plan-specific forms
With the statement, Matthew will confirm the account balance and other details about the ownership. Having the plan-specific transfer forms during the preparation of the MSA will allow Matthew to ensure that all of the information that the trustee will need to see in the court order to be able to transfer or divide the account will be in the judgment. The beneficiary designations or survivorship provisions are necessary to confirm that any changes you may wish to make to those provisions will be allowable and not in conflict with any other provision of the MSA.
Pro Tips for a Roth IRA in an Oregon Divorce
- Handling a Roth IRA appropriately in a divorce is important because of its unique tax advantages.
- You'll want to try to preserve the tax advantages through proper handling and careful drafting by your divorce mediator.
- If your divorce mediator does not have a law degree or is not experienced in the drafting of stipulations regarding Roth IRAs, the tax benefits of owning a Roth IRA could be destroyed unnecessarily.
- The administrative steps, if not done properly, can result in costly taxes and penalties, and future disputes can arise.
- Be sure the valuation is correct, the method of division is sound, and there is proper communication with the Roth IRA custodian.
Matthew will help you achieve all of those objectives.
Best Practices for Handling a Roth IRA in an Oregon Divorce
The most common ways that Mediator Matthew House's mediation clients choose to divide handle a 401(k) are, generally in order of the frequency, are:
- One spouse retains the Roth IRA, with an offset of comparable value of another asset to the other spouse.
- A portion of the Roth IRA is transferred to the other spouse's existing Roth IRA.
- A portion of the Roth IRA is transferred into a new Roth IRA established for the other spouse at the same institution.
- Cash out some of the contributions (but not the growth) and transfer them to the other spouse as cash..
- You agree to a deferred transfer at a specified event or on a particular date.
Matthew may recommend a particular disposition of the Roth IRA, based on your circumstances. However, the way you choose to handle the ownership or transfer of your Roth IRA is entirely up to you, assuming that both parties agree. Like all other decisions in mediation, the final decision is yours.
Next Steps
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