Splitting IRA from Divorce and 72t
Client is in middle of 72t payout and now going through divorce. He’s going to have to split the account in half. Is there any protection against 10% penalty for breaking 72t from the court order to split?
Client is in middle of 72t payout and now going through divorce. He’s going to have to split the account in half. Is there any protection against 10% penalty for breaking 72t from the court order to split?
Permalink Submitted by Alan - IRA critic on Fri, 2013-01-11 17:56
There are no IRS regulations on this question, and there have some conflicts among IRS decisions in many letter rulings issued over the years. However, there appears to be a solid trend in more recent rulings that allow the taxpayer to reduce their 72t payouts by the % their IRA was reduced on the day of the transfer to the ex spouse. However, the % reduction did not apply until the calendar year following the transfer. Note the usual disclaimer that letter rulings only apply to the specific applicant. If client has a modest IRA, he probably does not want to pay the 10k plus legal costs of seeking his own PLR. If not, his best chance of avoiding having his plan busted is to reduce his payout by 50% starting in the calendar year after the transfer, and include an explanatory note with his tax return for the year of change. The other spouse will typically receive their half without a plan and would have to start over to establish a new plan if they wanted to. Ref PLRs 2000 52039 and 2002 02076.