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Actions Retirement After Divorce? 5 Opportunities to Stretch Your Wealth
Investments
For divorces in 2019 or beyond, the spouse receiving alimony no longer will report it as taxable income. (Those divorced before January 1, 2019 are grandfathered and continue paying taxes on alimony.) The result? You could find yourself in a much lower tax bracket, so it may be a better time to pay taxes now versus later. Look into Roth 401(k)s or Roth IRAs versus traditional pre-tax accounts but keep in mind you may also find yourself paying little to no capital gain taxes on investment gains when investing outside a qualified plan, so plan accordingly.
Home Ownership
With a higher standard deduction and new limits on the deductibility of state and local taxes, more divorced individuals will see a much bigger financial benefit by renting versus owning a home.
Children and Taxes
When it comes to children under age 17, tax credits have replaced personal exemptions. And, since tax credits are more valuable, determining how each parent will recognize dependents on future tax filings will be more important than ever.
Social Security
With potentially lower alimony amounts going to the alimony recipient post-divorce, future Social Security income becomes even more important. For either spouse to qualify for spousal and survivor benefits in retirement, the marriage needs to last ten years or longer before a divorce. If your marriage is close to this duration, and circumstances permit, you may want to consider making it past this critical threshold before going to divorce court.
Financial Advice
With many of the Tax Cuts and Jobs Act changes, some assets will be much more valuable than others when determining the division of marital assets. In addition, implementing tax-smart financial planning strategies in the years following a divorce can help minimize taxes and stretch assets further in retirement. As a result, financial advice is more important than ever for those going through the divorce process and those saving for retirement post-divorce.
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Dec 03, 2020
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