Divorce split of IRA
Have a client getting divorced. They are trying to avoid a QRDO (cost) and just go with a Marital Settlement Agreement. FYI, very smooth and amicable divorce!
I was told that since funds are coming from the wife’s IRA it has to go to a qualified account in the husband’s name. He has a Solo 401k. Question is, can funds from her IRA be transferred to his Solok? Or does he need to open an IRA to receive the funds?
Custodian – Schwab – first said it was OK to go to SoloK and now is saying it has to go to an IRA.
Permalink Submitted by Alan - IRA critic on Wed, 2025-04-09 21:37
He needs to open an IRA for several reasons for mostly practical reasons.
Many custodians including Fidelity (and perhaps Schwab) will not do such a transfer other than to a like kind IRA.
If the IRA contains any basis whatever, the basis cannot be transferred to any qualified plan by law and IRA custodians have no idea whether the IRA contains basis or not.
An IRA to IRA transfer incident to divorce is not reported on a 1099R, while if the transfer was made to a qualified plan, a 1099R must be generated and reported.
Therefore, to avoid unintended consequences, suggest the husband open an IRA to receive the transfer. Once completed he may be able to directly rollover that IRA into the solo K if the solo K accepts IRA rollovers, but he must be sure not to roll any IRA basis into the solo K. If the wife had any IRA basis, a pro rated amount of that basis transfers with the IRA to the husband, and he must file an 8606 to report it.