Dealing with a divorce can be stressful enough on its own but having to make important financial decisions in the middle of the process is very difficult. If you or someone you know is in this position, make sure you think through your options when splitting assets, so you’ll avoid these common mistakes that people make. Plus, we’ll discuss procrastination excuses and get you jump-started on changing your retirement path.
Want to save time? Click the timestamps below to jump ahead to specific spots in the episode.
What You’ll Learn:
We’ve got a busy episode of the Money Wisdom podcast this week as we touch on a couple areas that can affect your finances negatively and then we’ll answer a couple of listener questions about rollover IRAs and retirement income.
Here’s a look at what we discussed with timestamps that you can click to take you to specific conversations in the show.
Dealing with Finances in Divorce
There’s a great chance you or someone you know as been impacted by a divorce. Unfortunately, they are a common life event in our society, and the process can create a lot of stress for everyone involved.
We want to help you through some of the important decisions you’ll have to make financially during a divorce. We’ll do that by discussing the common mistakes that get made when determining how to split the assets and how to handle the tax burden that comes along with each choice. You aren’t always thinking with a clear head so getting a grasp on these options will hopefully guide you in the direction that is best for you.
[3:43] – Let’s talk about some of the mistakes people make in divorce beginning with a story of a client that we’ve worked with recently.
[5:22] – One mistake people make is assuming you should keep the house over retirement accounts.
[6:19] – The next mistake is ignoring the tax implications of your choice.
[7:05] – Joel provides an example of how two accounts with similar value aren’t going to be worth the same after taxes.
[7:29] – Another mistake is taking the QDRO and rolling it immediately into an IRA.
[9:13] – The other side of that mistake is dipping too much into that account because of that tax penalty waiver.
[9:55] – Here’s the key takeaway to this discussion on divorce.
Are You Procrastinating Your Retirement Planning Because of These Excuses?
Life gets busy. We get it. But if you had a pressing health issue would you wait to take care of it or would you head straight for a doctor?
Why would you treat your finances any differently? Procrastinating when it comes to retirement planning will put you in a precarious position later in life. Let’s first explain what procrastination is and then try to sort out the reasons we put off important financial decisions.
[11:45] – Let’s talk through some of the reasons people have for procrastinating with their finances.
[12:03] – Let’s first talk about what procrastination really is.
[13:03] – First excuse: Everything will be fine. My parents never did much planning, and everything was okay for them in retirement.
[14:29] – Next excuse: I don’t know who to listen to!
[16:17] – Third excuse: I’m too busy to deal with retirement planning.
Taking Questions from Listeners
We bookended this episode with questions from you, the listener. Both brought up topics we get asked about a lot, so we’ll do our best to clear things up. The first deals with rolling over an old 401(k) into an IRA and Joel will tell you why there’s two key reasons for doing this. The second asks about retirement income and how you can feel certain you won’t have to return to work.
[1:19] – Email question: I’ve been told I should take my old 401k and roll it over to an IRA. Why is that?
[1:35] – A rollover will give you more flexibility.
[2:41] – The second reason is control. Here’s what that means.
[18:02] – Email Question: My neighbor retired two years ago and decided he has to go back to work because money is tight. Now I’m worried the same thing will happen to me. How can I be sure?
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“If you’re going to be receiving your spouse’s retirement account and you might need to tap it to pay some unavoidable divorce expenses or ‘getting a fresh start’ type of expenses, you may want to be careful. You may want to do some kind of a withdrawal instead of doing a rollover…There’s a lot of catches to this whole idea of splitting up retirement accounts during divorces.”– Joel Johnson, Money Wisdom Podcast
3 Related Items & Resources:
- 5 Scenarios That Cause Income Gaps In Retirement
- Simple Financial Strategies That We Often Fail to Follow
- Financial Planning Doesn’t End When Retirement Begins
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