RMD and property division on divorce

Submitted by MARK SKIBBE on Thu, 2017-11-16 20:19

Facts:

Husband is 74 and wife is 70.5 as of 9/1/18. They will be divorced effective 3/1/18 after 30 years of marriage. He currently has $1M in his IRA and she has $3M. They are likely going to reallocate the IRA total as part of the settlement.

They are aware that IRA dollars are worth more to the husband solely due to her 3.5 age advantage.

Question:

What are the consequences to each one (as to 2018 RMD’s) if the $4M total IRA values change due to divorce property settlement between 1/1/18 and the 12/31/18 deadline for taking the RMD? Say they go 50/50 on the division. 2018 will be her first year obviously.

Mark S.



Submitted by Alan - IRA critic on Thu, 2017-11-16 23:28

He will still have to base his 2018 RMD on the 1m value on 12/31/2017. Her RMD for 2018 will be based on the 3m value, but this RMD can be deferred to 4/1/2019. Their 2019 RMDs would be affected based on changed year end 2018 balances. In other words, there are no special adjustments that must be made to the 2018 RMDs, but the settlement might reflect the timing of the RMD for 2018, either before or after the transfer since the RMD will reduce the value of one IRA and increase the other.

Submitted by MARK SKIBBE on Thu, 2017-11-16 23:38

So you’re saying that the 2017 RMD ‘amounts’ are locked in by the 1/1/18 balances, regardless of divorces settlement allocations that happen after than and BEFORE the 2018 RMD would be made ?  Assuming they wait until December of 2018 to take the RMD’s. Thanks

Submitted by MARK SKIBBE on Thu, 2017-11-16 23:39

sorry – this is obviously a 2018 situation entirely.

Submitted by Alan - IRA critic on Fri, 2017-11-17 00:17

  • The RMDs for 2018 are fixed whether there is a settlement transfer or not. However, the decree provisions should reflect how distributions (RMDs or otherwise) might affect the amount of the transfer. Perhaps a valuation date will be selected, with the settlement not affected by distributions after that date. But distributions between now and the valuation date may affect the amount of the settlement. The IRS does not care about any of that.
  • So in 2018 there will be additional income due to 3mm more of IRA value being subject to RMDs and at the same time they will be filing as single which will affect the tax bill for the spouse with the increased income (her) in 2018. Either or both might want to consider a Roth conversion before the end of this year to reduce future RMDs. IRMAA may also be affected due to higher RMDs (2020 Medicare premium based on 2018 MAGI).

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