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When Iowa couples decide to divorce, the future of their retirement funds can loom large for many. These are some of the most significant assets that many people have, and the outcome of property division may lead people to alter their plans for retirement or step up their single savings. There are also particular tax concerns that come with touching retirement savings plans, because these accounts carry certain tax advantages for savings and restrictions on withdrawals. It can be important for people going through a divorce to be aware about how to handle retirement fund changes effectively.

For people with individual retirement accounts, changes after a divorce settlement can be easier in some ways. The divorce decree is all that people need to instruct the plan administrator to divide the account. However, it is important to remember that early withdrawals from an IRA carry an additional penalty of 10% in addition to regular income taxes assessed on the disbursement. This does not apply to a divorce distribution; there is no penalty to divide an IRA. However, recipients must put the funds into their own retirement account rather than using them to fund their new single life. If they do not roll over the funds, they are likely to face penalties.

People who have 401(k)s or pension plans may have different concerns. These employment-sponsored plans are known as qualified plans. Under the law, the plan administrator must have a special court order, a Qualified Domestic Relations Order to divide the funds; the divorce decree by itself is insufficient.

Because retirement funds are such a major part of many people’s financial profiles, property division may raise particular concerns. A family law attorney may help client negotiate a fair settlement.