Opening an IRA after Divorce

Submitted by Bill Winters on Sun, 2019-12-29 14:24

Receiving funds from spouses TSP and need to open an IRA. I’m retired (Age is 60) and want to start withdrawing as soon as possible. What advice on tradition or Roth IRA. Very new how IRA’s work or the best for my situation.



Submitted by Alan - IRA critic on Sun, 2019-12-29 15:24

  • You will have an option to have your portion remain in the TSP under your name, or you can have the pre tax TSP balance rolled to a traditional IRA and any Roth TSP balance must be directly rolled into a Roth IRA.  Therefore, you or your attorney will have to determine whether there is a Roth TSP balance or not.
  • I assume that the TSP has received and accepted a “Retirement benefits court order”, and perhaps ex’s TSP has been temporarily frozen.
  • Once your open a traditional (and perhaps Roth IRA), you can do a direct rollover to the appropriate IRA. The TSP will have forms to be completed, and you can get help from them and/or your IRA custodian.
  • If you will need to take distributions from your traditional IRA, you will owe taxes but no penalty because you have reached 59.5. Distributions from your Roth IRA will be tax free, but for the first 5 years only up to the amount your ex contributed to the Roth TSP. You could get that amount off the 1099R issued by the TSP for your direct rollover to Roth IRA.
  • Be sure to check with your IRA custodian to make sure that the correct amount was rolled into your IRA, particularly if there was a Roth TSP balance. It is critical that the correct amounts go to each IRA type if there is a Roth TSP involved.
  • Once you reach age 72, you will have to take RMDs from your traditional IRA, but not from your Roth IRA (if any). Till then you can withdraw whatever amount you need, but distributions from a traditional IRA will be taxable, and these are reported to you and the IRS on Form 1099R each January for the prior year.
  • You may need to get some basic investment advice from your IRA custodian. You have a wide range of custodians available, but you can’t go wrong with either Schwab, Fidelity, or Vanguard. They all have a wide array of investment options and low costs.
  • IRA distribution rules are contained in IRS Pub 590 B, link below.
  • https://www.irs.gov/pub/irs-pdf/p590b.pdf

Submitted by Bill Winters on Wed, 2020-01-01 16:08

Thanks, that is very helpful. Once I start withdrawing from the IRA is it true that FICA is not taxed? Is there an online calculator to help?

Submitted by Alan - IRA critic on Wed, 2020-01-01 19:22

There is no FICA tax on IRA distributions, but distributions will be subject to ordinary income tax rates (no cap gain rates) for federal and state. There is also a 10% early distribution penalty in most cases for distribution before age 59.5, but you have passed that age. Therefore, your taxes on IRA distributions would be the same as if the distributed amount was wage income instead of a retirement plan. There are several on line tax estimators for your entire federal income taxes including IRA distributions and all other income sources. 

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