IRA 72t going through divorce with QDRO

Submitted by S Baukol on Wed, 2014-10-08 19:28

Hello,
We have a male client current age 55 who has an IRA account approximate value of $600,000.00. He has been drawing a 72t distribution since age 51 with the appropriate interest rates at that time and receiving this monthly distribution of $1700/mo. He is currently going through a divorce and a QDRO will order an amount of this IRA balance to his ex-wife. Let’s use $100,000 for the amount to be given to his ex as an example for this question today as the amount is yet to be set. My question is, will this distribution be penalized? Will this distribution impact his $1700/mo that he withdraws at all? Will his monthly need to be recalculated due to the new balance in the account? Will the previous distributions be penalized?

Please advise.

Regards,

Scott Baukol
Baukol Retirement Specialists



Submitted by Alan - IRA critic on Wed, 2014-10-08 20:17

  • Scott, the IRS has issued several PLRs over the years, and they have not been consistent. Therefore, it is always recommended that the settlement be worked out such that the 72t plan can be completed by the IRA owner whenever possible. Here are a couple PLR references: http://www.72t.net/72t/FAQ#Faq14.
  • The partitioning of the 100k amount to the wife should be done as a non reportable transfer to eliminate the 1099R. I think the lesser risk would be for him to continue the same distribution amount as before, and everything will appear the same to the IRS. However, if the wife also expects to take penalty free distributions from her share, then it would be best if she started her own plan rather than pro rating the 1700 between the two of them based on the portion of the IRA transferred to her.
  • Again, the IRS reaction to any of the seemingly equitable adjustments is totally unpredictable.

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