SIMPLE IRA – Divorce
Surprising I have never encountered this situation
SIMPLE IRA owner divorces
Divorce agreement gives 50% of the SIMPLE account to the former spouse
Is the IRA custodian required to transfer the assets to a simple (in the name of the x-spouse)?
Can the assets be transferred to a T-IRA?
Assuming the assets must be moved to a SIMPLE – is the x-spouse subject to the 2-year rule regarding distributions?
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2016-08-31 23:51
Notice 98-4 contains no exemptions to the 2 year waiting period for a transfer incident to divorce settlement. Therefore, the non participant spouse cannot receive a distribution from the SIMPLE IRA without paying a 25% penalty (if applicable) and taxes on the distribution ineligible for rollover. Essentially, they would have to wait out the 2 year period before transfering to a TIRA. If a 5305 SIMPLE, the spouse could probably transfer to a transfer SIMPLE IRA if they just wanted to reduce fees etc, but otherwise there is no benefit for doing that. The two year period would just continue to run. It is still advisable to submit the court order to the SIMPLE Custodian just to have the SIMPLE partitioned into two accounts to get control of it and name a new beneficiary.