IRA transfer pursuant to Divorce
New client comes to me and wants me to compute her IRA basis in light of some Roth Conversions. In doing the research, i noticed that husband transferred his IRA to the wife in 1998. I inquired as to why and was told they were going to get divorced but reconciled and never divorced. There was no legal separation agreement or property transfer agreement. Not sure why the custodian transferred the account without sufficent documentation. What do we do? Leave the IRA in the wife’s name or request the custodian transfer the IRA back to the husband? And then do all the contributions that have been made since 1998 attribute to husband if account is re-titled to husband?
Permalink Submitted by Alan - IRA critic on Mon, 2022-12-19 17:10
This was a serious taxpayer and custodian error which the IRS could consider as a 1988 taxable distribution subject to penalty and an excess contribution to her IRA. I assume that there was no 1099R issued in 1998. At this point 24 years later I would just leave this alone unless they actually divorce now and the account is transferred back. And even that would not erase the original error or 24 years of 6% excess contribution excise taxes for which there is no SOL. Now if wife has been making regular TIRA contributions since 1998, were 8606 forms filed to report them? If not, she could determine the correct IRA basis and report it on line 2 of the current conversion year 8606 with an explanatory statement. Again, there is no fix for the 1998 error that would not be a financial disaster for them.