Roth Holding Period
A Roth IRA owner gets divorced and the ex-spouse receives 1/2 of the Roth IRA. Does the holding period carry-over, or start anew with the ex-spouse?
590 indicates that the holding period starts “with the first taxable year a contribution was made to a Roth IRA set up for your benefit”. Can we look at the first contribution to the Roth IRA as for the benefit of the ex-spouse, since she ultimately received 50% of the IRA?
Permalink Submitted by Alan Spross on Wed, 2012-07-25 22:30
No new clocks start to run upon a transfer incident to divorce. The alternate payee spouse is considered to have received their share of the Roth IRA in unmodified form via transfer and there is no taxable distribution. Therefore, the receiving spouse is considered to have made their particular share of each contribution, conversion or distribution exactly when the original spouse did.
After transfer then, each spouse’s Roth IRA is a proportionate amount of what the total Roth IRA was the day before the transfer. The receiving spouse needs to secure this detailed information in order to be in a position to report any distributions made before their Roth is qualified. The IRS Regs for Roth IRAs do not specifically address this issue, so all we have to go on is the default back to the traditional IRA provisions referencing a divorce transfer. Those Regs state that the receiving spouse is considered to have acquired an interest in the IRA that is now their IRA. Acquiring an interest would include the characteristics of the IRA, so starting anything out new for the receiving spouse would conflict with this wording.
The corresponding treatment for a TIRA is that each spouse has a proportionate share of any basis in the TIRA, and will have to file their own 8606 to report the basis acquired in the divorce transfer.
Permalink Submitted by Alanna Crawford on Thu, 2012-07-26 13:14
Great- thank you!