Retirement Accounts

UpdatedDecember 15, 2025

There are a wide variety of retirement accounts you may see as part of a divorce. It’s crucial to know what type of account the client has to it can be properly valued and divided.

Some terms that will be helpful to know before we get into the types of plans:

Pre-Tax Contributions/Accounts: Contributions made into a qualifying retirement account directly out of a paycheck and before paying income taxes on that amount. Upon retirement, the money withdrawn will be subject to ordinary income tax. Pre-tax contributions reduce your taxable income, which many see as a tax benefit.

After-Tax Contributions/Accounts: Contributions made into a retirement plan after you’ve already paid income taxes on that money. Upon retirement, the money withdrawn will not be subject to ordinary income tax (because it was already taxed once).

Employer-sponsored retirement plan: An employer-sponsored retirement plan works by deducting a certain percentage of an employee’s wages (pre-tax) from their paycheck and depositing it into a retirement account. The employer may also contribute to the retirement account, either by matching a portion of the employee’s contributions or by making a flat contribution. Most (all?) employers stop contributing if the person no longer is employed.

Qualified Distributions: A withdrawal from a qualified retirement plan (like a 401k, 403b, or IRA). These distributions are penalty-free and can be tax-free, depending on the retirement account and the circumstances (usually age of person withdrawing). Qualified distributions come with certain conditions and restrictions set by the Internal Revenue Service (IRS). The IRS imposes taxes and penalties on withdrawals that don’t meet the qualified distribution criteria. This means that if you withdraw money and the withdrawal does not meet the criteria for the account, you will be taxed and could pay an additional tax penalty.

Required Minimum Distributions (RMD): The minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73.

Defined Contribution (DC) Plan

A retirement plan that allows a person to contribute an amount or a percentage to an account that’s intended to fund their retirements. Generally, the person makes most of the contributions to this plan, but there can also be an employer matched amount when it is an employer-sponsored retirement plan. There’s no promise of a specific amount of benefits when the person retires, rather the benefits are based on the amount the person has contributed to their account plus or minus and gains/losses, fees, etc. (The more you put into the account and the better the market, the more you’ll have at retirement). There are usually restrictions that control when and how each person can withdraw from their accounts without penalties.

Examples of Defined Contribution Plans:

401k
403b
457b
Roth IRA
Simple IRA
SEP
Thrift Savings Plan
Profit-sharing plans
ESOP (Employee stock ownership plans)

Defined Contribution plans and additional information on each:

401K – an employer-provided, defined-contribution plan where an employer may match contributions.

Traditional 401k: Employee contributions are pretax. Withdrawals taxed as ordinary income. Employer may match/contribute.
Roth 401k: Employee contributions are made with after-tax. Withdrawals are tax-free if qualified distributions. Employer may match/contribute.

Individual Retirement Account (IRA) – a long-term, tax-advantaged savings account that individuals can use to save for the future. Four different types (listed from Most Common to Least Common)

Traditional IRA: Contributions are pre-tax. Withdrawals taxed as ordinary income. Employer may match/contribute.
Roth IRA: Contributions are made with after-tax. Withdrawals are tax-free if qualified distributions. Employer may match/contribute.
Simplified Employee Pension (SEP) IRA: Employers (not employees) can contribute to a retirement account for the benefit of the employee. Employees cannot contribute to the plan, only the employers. Can be used by employers or self-employed people. Has higher contribution limits than a traditional IRA.
Savings Incentive Match Plan for Employees (SIMPLE) IRA: Contributes are pre-tax. Able to be used by small businesses with 100 or less employees. There are two contribution formulas that can be used: (1) an employer can match up to 3% of the employee’s annual contributions or (2) an employer can set up a non-elective 2% contribution of each employee’s salary without requiring employee contribution. Has lower contribution limits than SEP IRA.

403(b) – A tax advantage retirement account for certain employees of tax-exempt organizations. Common among schools, governments, nurses, doctors. Similar to a 401k, but for tax-exempt organizations.

Traditional 403(b) – Contributions are pre-tax. Also known as a Tax-Sheltered Annuity (TSA). Employers may match/contribute.
Roth 403(b) – Not common. Contributions are after-tax. Employers may match/contribute.

457 Plan – A tax-advantaged retirement savings plan for many state, local government, and some nonprofit organization employees with no early withdrawal penalty.

Traditional 457 (b) – The most common 457 type. Contributions are pre-tax. Employers may match/contribute.
Roth 457(b) – Not common. Contributions are after-tax. Employers may match/contribute.
457(f) – Not common. supplemental plan offered only to highly compensated executives in tax exempt organizations.

Thrift Savings Plan (TSP) – retirement savings and investment plan for federal employees and members of the military. It is similar to a 401(k) plan offered in the private sector, providing participants with a way to save for retirement in a tax-advantaged account.

Employee Stock Ownership Plan (ESOP) – An employee stock ownership plan (ESOP) is an employee benefit that gives workers ownership interest in the company in the form of shares of stock. ESOPs are also offered as a retirement benefit.

Companies typically tie distributions from the plan to vesting, which gives employees rights to employer-provided assets over time.
When a fully-vested employee retires or leaves the company, the firm “purchases” the vested shares back from them. The money goes to the employee in a lump sum or equal periodic payments, depending on the plan.
Some ESOPs may distribute dividend payments to employees who are still at the company. Other in-service distributions may be done by some plans as well.

Pre-Tax vs. After-Tax Accounts in divorce and division of assets (DA Sheet)

It is important to know whether the retirement accounts we are dealing with are pre-tax or after-tax. This is because the tax implications can affect the perceived value of each retirement account. If there is a pre-tax account and an after-tax account each worth $100,000, the after-tax account will likely be worth more in the long run because the pre-tax account will have to pay ordinary income taxes when they begin to withdraw the funds, but the after-tax account will not.

You may see some attorneys differentiate pre-tax and after-tax accounts these on their debt asset sheets. If they do that, they will also likely account for the estimated taxes that will be taken out of the pre-tax account, and therefore reduce the value of the pre-tax account.

Defined Benefit Plan

An employer-sponsored retirement plan that promises a specific monthly benefit at retirement (guaranteed income for life when they retire), usually based on salary and years of service. Generally, the employer makes most of the contributions to this plan. However, the employee may be required to contribute or can voluntarily choose to contribute through pre-tax deductions from their paychecks.

Examples of Defined Benefit Plans:

Pensions

Types of employment that almost always have pensions

State Employees
Local Government Employees
County Employees
Law Enforcement
Firefighters
Teachers
University / College Employees
Postal Workers
Railroad Workers

Types of employment that may have pensions

Unionized construction workers (electricians, plumbers, carpenters)
Long-Established manufacturing companies, especially those with unions
Healthcare workers (Mayo Clinic Employees generally have pensions)
Other jobs with strong union presences

Defined Benefit Plans (Pensions) in divorce and division assets (DA Sheet)

When looking at pensions, it is crucial to not mistake the cash value for the actual value. The cash value simply represents the amount that has been contributed to the account but is not at all representative of what the actual pension value will be. The true value of a pension (also referred to as an actuarial value or present value calculation) is a calculated estimate of how much the pension will pay out over the participants lifetime after they retire. This calculation is usually based on how long the person has worked for that company, the current age of the party, the anticipated retirement age, and their salary. Jason said an old rule of thumb that can be used very informally is that a pension is usually worth about 3x the cash value.

On the DA Sheet, don’t list a value in the table, instead just put an X in the column of the party getting the pension. In the Notes Section, provide a cash value of the Pension just so the attorney has an idea the size of the Pension. For Instance, Cash Value as of 10/1/23 = $45,611. If we don’t have exact numbers or information, you can always just put “split” in each column indicating we just want to split the marital value.

If someone has been at a job with a pension for a long time, they probably have a sizeable pension that’s worth getting valued. Hidli handles most of our pension valuations and their information can be found here: Family Law – Financial Experts (+QDRO, appraisals, voc asmt) – K|H Law Wiki. The cost is about $400 per pension (as of 11/1/24).

Here are a couple examples of Hilid’s Valuations:
2024-11-01 Present Value Calculation for Darlene TRA Pension (Hildi)

In this situation, the “cash value” of this account was $118,150 (Contributions $84,486 + Interest $24,763). Hildi determined the present value to be between approximately $327,000 and $384,000.

2024-04-02 Hildi Pension Valuation.

In this situation, the “cash value” of this account was $27,195. Hildi determined the present value to be between approximately $36,000 and $55,000.

2023-05-15 Hildi Pension Valuation

I don’t know what the “cash value” of this account was, but Hildi valued it at over $750,000.

Documentation to Divide or Split Retirement Accounts

If an account has to be divided up as part of the divorce, or transferred from one party to the other, the accounts are not subject to any sort of early withdrawal taxes or penalties. Divorce is an event that allows this movement/withdrawal of funds to happen without penalty.

To divide up or transfer these accounts, a QDRO or DRO will need to be completed. For more info on QDROs, see Family Law – QDRO (Qualified Domestic Relations Order) – K|H Law Wiki

For defined contribution plans, a certain amount of money will be physically moved from one account to the other based on whatever the agreement was in the MTA.

For defined benefit plans, there is no actual money to move, because the money is not yet paid out. The spouse being awarded part of the pension will only be paid out upon retirement of the spouse with the pension. A QDRO/DRO will be drafted and sent to the pension holder (PERA, TRA, etc) indicating what percentage of the pension will go to the other spouse upon retirement. It is a formula that may look something like this:

That TRA will pay benefits to the Alternate Payee pursuant to the following formula:

the numerator shall be the total number of years earned during the marriage,

2447 days divided by 365 days = 6.7041 years

the numerator is divided by total years of TRA service credit at the time of Participant’s retirement,

multiplied by 50% of an annuity, refund or any other benefit payable with respect to the Participant.