Roth IRA Transfer (X-Spouse)

Submitted by ShipsnGiggles on Wed, 2013-05-29 01:25

Greetings All,

This is an intersting situation that I stumbled upon.

Here is what I know:

Account owner (now divorced) was instructed, per divorce decree to give his “x” $50k from his Roth IRA
Roth IRA has not satisfied the 5 year hold period
Roth IRA is “under water”
Rough estimates – basis = $150k; current value = $143k

Questions
The spouse wants to liquidate the entire 50K that was transferred to her
Is it taxable? Does a penalty apply (if she is >59.5 and an exception does not apply)? Or…is the $50k basis? What abot any earnings that accured since the transfer?

All help is appreciated

Thank you



Submitted by Alan - IRA critic on Wed, 2013-05-29 04:28

  • A “transfer incident to divorce” results in the receiving spouse acquiring a pro rated share of the Roth basis. Receiving spouse will receive 35% of the Roth value and 35% of the basis, therefore they have a basis of 52,500 for their share of the Roth. Basis should be allocated beween regular contribution basis and conversion basis. If account owner had done a conversion less than 5 years ago, receiving spouse receives 35% of the conversion basis, and withdrawal of the conversion before 5 years would result in a 10% penalty on the pre tax amount of the conversion. If receiving spouse’s Roth increases to more than 52,500 then they have earnings which would be taxable if distributed before the Roth was qualified (spouse reaches 59.5 and at least 5 years from the year of the original owner’s first contribution. To simplify this explanation, the receiving spouse is treated as if they owner their share of the Roth since the original contribution was made.
  • If spouse liquidates the account right away, there is no tax or penalty unless there was a conversion done within the past 5 years. There is a 10% penalty on the allocated pre tax conversion amount.

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