QUADRO
T/P has divorce decree calling for a Quadro to split 401K. T/p and spouse agree on amount but it’s not stipulated in the divorce decree. T/P inadvertently rolls the 401K into a new rollover IRA. T/P now wants to split the IRA and the spouse agrees on the amount. Will this transfer follow the guidelines of the divorce decree or should it be rolled back into the 401K and split? Second part of the question is whether the IRA, if it can be split , must the transfer be made to the spouse at the same financial institution or can the spouse choose another institution to make the transfer?
Permalink Submitted by Alan - IRA critic on Tue, 2017-03-28 03:59
The main difference is for the alternate payee (spouse) who could take penalty free distributions from the 401k directly, but cannot use the penalty exception for IRA distributions. If the QDRO has already been drafted, the higher cost of a QDRO in comparison to an order to transfer a portion of an IRA incident to divorce has been wasted because the plan is not about to accept that money back into the 401k so they can incur the costs of QDRO management. Plan administrator is likely delighted with the IRA rollover. If the QDRO has not been drafted, that should reduce legal costs. When the IRA is split, the spouse can use whatever custodian the spouse prefers and the transferred funds will be treated in all respects as that spouse’s own IRA account. Of course, if the spouse is over 59.5 the 10% penalty will not be a problem, but if the spouse is younger they may have to resort to an inflexible 72t (SEPP) plan in order to avoid the 10% penalty. See article here: https://irahelp.com/slottreport/when-splitting-ira-money-divorce-be-careful-don%E2%80%99t-use-qdro
Permalink Submitted by Peter Hall on Thu, 2017-03-30 13:54
The IRA is currently with Fidelity and Fidelity is insisting that the spouse open a Fidelity account to facilitate the IRA split. The spouse is insistant on having the IRA transfered to AXA and refuses to open the fidelity account. Can the taxpayer move the IRA to an AXA account to facilitate the split? As I mentioned previously, the amount of the transfer is a fixed amount.
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-30 19:53
Since opening the IRA at Fidelity and letting them do the transfer will eliminate AXA from having to examine the court orders, it is probably much more efficient to have Fidelity make the transfer to the spouse’s IRA there. Then the spouse can have AXA request a direct trustee transfer of the IRA to them without the hassle of them becoming involved with the court order. In other words, what will actually facilitate this process is avoiding potential hang ups so opening the account at Fidelity is the way to go, even if the funds only remain in that account for a week or so.