Divorce IRA distribution
Client is getting a divorce. Funds are currently in IRA (Tax deferred). Ex spouse wants a cash distribution, rather than putting the funds in her IRA. Will ex spouse be taxed on the entire distribution? Which party is responsible for the tax? Does ex spouse have 60 days to get the money into an IRA?
Additionally, I would imagine there are mandatory withholdings on the distribution?
Permalink Submitted by Alan - IRA critic on Mon, 2022-06-20 20:01
The tax and penalty, if applicable, will be owed by the spouse whose IRA makes the distribution. There are no rollovers allowed between spouses, only a non reportable direct transfer pursuant to divorce in which funds are transferred from one spouse’s IRA to the other spouse’s IRA. Therefore, if the client takes a distribution, then client will have to report the taxable income and penalty if applicable, but if the transfer incident to divorce is processed instead, ex spouse would take the distribution and would owe tax and penalty. There is no mandatory withholding for an IRA distribution if declined by the IRA owner.