The Traditional IRA versus the Roth IRA?

In dividing marital property and debt in a divorce, the court has to accomplish this in a just manner in an equitable division state.  Both Missouri and Illinois are both equitable division states where the court looks at various factors in dividing marital property and debt.

In some cases, the parties are able to enter into a comprehensive settlement in terms of the division of marital property and debt.  In other cases, the court has to make a determination after a trial or evidentiary hearing.

In some cases, retirement accounts and investment accounts can become a critical issue in a case.  In certain situations, the parties going through a divorce may have a Traditional IRA and a Roth IRA.  Parties are often torn into knowing which of these two assets would be best to request either at trial or in settlement negotiations.

Obviously, any party who is in this type of situation should consult their attorney who may advise the client to consult a financial expert to help them make a decision.  In some cases as well, it isn’t a scenario where one party can simply choose one account over the other.  The court could ultimately divide the various accounts if the court determines this is a just given the circumstances.

However, it is important for parties to understand the different between Traditional IRAs and Roth IRAs such that they can divide a strategy for their case.

  • Roth IRAs can have a substantive advantage in that they allow for tax-free withdrawals after age 59 1/2.  In other words, although the actual contributions are not tax-deductible, withdrawals at age 59 1/2 (or sooner in some circumstances) are generally tax-free as long as it has been in the account for at least five years.
  • This contrasts with Traditional IRAs where taxes are paid when withdrawals are made even after age 59 1/2.

For this reason, many might consider seeking assets in a Roth IRA versus a Traditional IRA if this is a possibility for their case.  After all, it would almost always make sense to seek the retirement account where less taxes will be owed when withdrawals are made.  However, because property division is complex,  it is important to discus this matter thoroughly with an attorney and a financial expert.

Fo those individuals who are going through a divorce where property division and retirement assets are a significant issue, Stange Law Firm, PC can help.  We have St. Louis divorce lawyers who can assist if you call 1-855-805-0595.

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