Divorce #RetirementSavings #FinancialPlanning
Assess Your Current Retirement Savings Vehicles
Before you make any decisions regarding your retirement savings during a potential divorce, it’s essential to take a closer look at what you currently have in place. This will help you understand where you stand financially and what adjustments may be necessary.
Partner A’s Retirement Savings
- Roth IRA: $110k
- Traditional IRA: $10k
- 457b: $35k
Partner B’s Retirement Savings
- 401k: $45k
- Roth IRA: $77k
- Traditional IRA: $7k
Consider Consolidating Your Roth and Traditional IRAs
If you’re considering consolidating your Roth and traditional IRAs, it’s important to weigh the pros and cons. While consolidating can simplify your retirement savings strategy, it may also impact your tax situation. Be sure to consult with a financial advisor to determine the best course of action for your specific circumstances.
Take Advantage of Retirement Account Benefits
During a life event like divorce, certain retirement accounts may offer advantages that can help you navigate the financial transition. For example, some retirement accounts may provide penalty-free withdrawals or other benefits in the case of divorce. It’s worth exploring these options to make the most of your retirement savings during this time.
Focus on Building Cash Reserves
As you mentioned, building cash reserves is a wise move during a potentially turbulent time like divorce. Having a financial buffer can provide peace of mind and help cover any unexpected expenses that may arise during the process. Consider setting aside a portion of your savings towards building up your cash reserves.
Final Thoughts
Navigating divorce and its impact on your retirement savings can be a challenging process. By assessing your current savings vehicles, considering consolidation options, taking advantage of retirement account benefits, and focusing on building cash reserves, you can better prepare yourself financially for the road ahead. Remember to seek advice from a financial professional to guide you through this transition and ensure your retirement savings are in good hands.
> Questions on my end: – anything to consolidate the Roth and traditional IRA?
Don’t know what you mean by this.
> The traditional started after we exceeded the Roth limit last tax year,
You should have converted the Traditional IRA to Roth afterwards.
You performed Step 1 of the Backdoor Roth strategy (make non-deductible Traditional IRA contribution). Sounds like you failed to perform Step 2 of the Backdoor Roth strategy (convert the Traditional IRA to Roth.
See Screwup #3 in the Second link below.
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Read this for everything you need to know about Backdoor Roth and Form 8606:
* https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
Read this list of common screwups and solutions with respect to backdoor Roth. Beware of Screwup #5.
* https://www.whitecoatinvestor.com/fix-backdoor-roth-ira-screw-ups/
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> – any advantage to these accounts given a life event?
No change.
> – building cash seems ideal.
Sure, if you need the cash.
> But am I missing anything?
A divorce attorney. You should not make any significant financial moves without legal counsel.
So you each get half of all your acquired community property in the divorce settlement and form your own individual new FIRE plans if you want to. Nobody should be trying to hide money from their spouse in contemplation of divorce.
FYI many people will tell you that you have to refinance the house if one of you want to keep it and buy the other out. This is not true.
If you and your soon-to-be-ex decide that one of you keeps the house and buys the equity from the other, another possible option is for you to do a Mortgage Assumption. This allows one of you to be removed as a borrower on the existing mortgage (assuming the person remaining on the mortgage is a qualified borrower in the bank’s eyes). All terms of the mortgage stay the same, including the interest rate (which is a huge advantage to you right now).
This process is more common than people think. Even if your loan docs specifically prohibit it, it’s possible.
Source: me. I’ve done exactly this
One dependent.
Divorce when children are involved can be financially devastating and increases the risk of the child having significant problems (that will impact your finances) in the future. The best course of action is to find a way to not divorce until the dependent is grown up.
It also majorly sucks to watch other adults raise your kid.
If you want to avoid paying tax on traditional to Roth IRA conversions you could look into whether your 457/401k accepts rollovers.
That said, there may not be much tax on conversions at least for partner B. Partner B (if they maxed Roth last year) appears to have no growth to be taxed. Partner A on otherhand may have $3k growth is only started last year and maxed (well done)!