IRA in a divorce

If a spouse gets the IRA in a divorce, does she get hit with the penalty and tax if she uses to purchase/stay in the home?



Yes, the penalty exemption for a QDRO distribution does not apply to IRAs. Ordinary income tax would apply to all pre tax TIRA distributions, and the pre age 59.5 early distribution penalty would also apply since the spouse would not qualify as a first time homebuyer assuming she has a current interest in the home. Even if the first home penalty exemption could be used later after renting it back for 2 years, it  only applies against 10,000 of the distribution.



Does it apply to 401k QDROs?



Yes, the penalty exception does apply to distributions from a qualified plan to the alternate payee. But that exception does not carry over to an IRA if the qualified plan is rolled over to receiving spouse’s IRA.



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