Roth IRA Divorce Question
Hello,
I have two clients both under 59 1/2 that are getting divorced and the wife is giving half of her Roth IRA to her ex-spouse. I know our custodian will treat this as a divorce transfer but they do not track cost basis on Roth IRA’s. Would it be the wife’s responsibility to let her ex-spouse know when the contributions were made to the Roth IRA to avoid penalties if the fund were taken out before the five year rule? Any feedback would be greatly appreciated.
Thank you.
Permalink Submitted by David Mertz on Thu, 2022-10-06 15:05
Yes, the holding periods and half of the wife’s basis transfer to the ex-spouse, so the wife needs to provide that information to the ex-spouse. What needs to be provided is the year for which the first Roth IRA contribution was made (particularly if the ex-spouse will reach age 59½ before the ex-spouse will have had a Roth IRA for 5 years), the basis in regular contributions and the years and amounts, taxable and nontaxable, of any Roth conversions.
Permalink Submitted by Alan - IRA critic on Thu, 2022-10-06 16:00
Yes, wife must provide ex with 50% of her regular contribution basis, 50% of her conversion basis, and 50% of conversion amounts done in last 5 years with taxable portion of those conversions in last 5 years. He would then incorporate this added basis into his own Roth IRA basis. There is no guidance on this, but if her first contribution year was earlier than his, he should be able to use the earliest. His own age will apply with respect to any early distribution penalties. Hopefully, wife had organized this info, but his attorney should specify what is needed from the start of the process while there is still leverage.