Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature
by Joseph W. Cunningham, JD, CPA
The following is a continuation of the materials presented in the March 2015 Tax Trends column.
III. Defined Contribution (DC) Plans
- A DC plan–such as a 401(k) plan – provides for separate account for each participant.
- E.g.–W’s account balance under the XYZ 401(k) plan was $50,000 on December 31, 2014.
- Other types of DC plans include pro t-sharing plans, money purchase pension plans, and 403(b) annuities.
- Division of DC plan accounts is also accomplished either by the o set method or by deferred division using a QDRO/EDRO.
- Offset method – Valuation
- The present value of the DC plan interest is generally considered its account balance as of the valuation date. See above for an example.
- As with the present value of pensions under DB plans, it is typically appropriate to tax affect the value of the account balance.
- It is important to specify a valuation date, generally close to when other assets will be divided.
- If there is a plan loan, the account is (1) valued net of the loan and (2) responsibility to repay the loan is assigned to the participant.
- The total pre-tax value of W’s 401(k) account is $50,000 – $40,000 of plan investments and (2) a $10,000 loan she drew from the plan.
- Equal division under the offset method:
(Table shown in PDF)
- Deferred division method – QDROs/EDROs
Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)