Roth IRA (transfer to former spouse)
Hello
Guidance with the following scenario is appreciated
FACTS:
Wife received a portion of her former spouse Roth’s IRA in a divorce settlement
Roth IRA is composed of contributions and multiple conversions (over a # of years)
Wife, (upon transfer) immediately begins taking withdrawals
Wife is younger than 59.5
Question(s)
Am I correct in stating – post-transfer – the Roth IRA is considered the wife’s own Roth IRA and all Roth IRA withdrawal rules apply? In order for the spouse to receive tax-free income she must satisfy the 5 year hold period and 59.5, death or disability? The 5-year hold period moves from husband to wife? correct?
If my thinking is correct – the spouse will recover basis tax free – upon it (basis) being exhausted income taxes and 10% early withdrawal penalty will apply? Thoughts?
Extra credit
Spouse (wife) does not know the basis and/or the conversion tax years. What recourse does she have to obtain the data?
Thank you
Permalink Submitted by Alan - IRA critic on Mon, 2014-03-10 20:26
The 5 year holding period for the wife’s Roth started on the same date as the husband. Wife will receive 50% of his regular contributions and 50% of his conversion balance as her basis. Conversions must be held 5 years for each year’s conversion to avoid the 50% penalty. Her earnings are the amount her Roth exceeds the basis from regular and conversion contributions. Wife’s access to the dates and amounts regarding this Roth are necessary for her to report all her distributions properly and the divorce settlement should have required that a report be made available to her. She may need to have her attorney secure this information. Many people do not keep organized Roth activity records, so her ex may need time to secure this data, and he also needs to document his remaining basis in his half of the Roth.