Substantial age difference/RMD in divorce settlement
Facts:
a 71 year old man just took his first RMD out of an IRA worth $3.5M – he’s in the process of settling a divorce from his 52 year old wife (20 year marriage).
the divorce attorneys would like to give the wife the entire IRA as part of the settlement (total marital estate is about $11M). Because of the large age difference (in light of the RMD rules), both parties see the tremendous advantage in getting the IRA asset to the wife versus the husband retaining all (or part of it).
Is there something that would thwart this planning?
ms
Permalink Submitted by Alan - IRA critic on Thu, 2017-05-25 16:43
If the parties negotiate this outcome, the transfer incident to divorce can be made. However, the wife will not be the sole beneficiary of the IRA for the entire year, so his 2017 RMD will rise and he will have to use the Uniform Table to calculate the new RMD and withdraw an additional amount so that his RMD is complete by the date of transfer (Ref IRS Reg. 1.401(a)(9)-5 Q 4). The wife will then own the IRA 7 years before she can take penalty free distributions, and as a result she will likely need to establish a 72t plan to avoid the 10% penalty for any distributions before she reaches 59.5.
Permalink Submitted by MARK SKIBBE on Thu, 2017-05-25 21:39
The great news in this case, is that the wife is a doctor and doesn’t need to touch the IRA money………..this seems like a huge take win for all as the IRA is worth so much more to a wealthy 52 year old than it is to a 71 year old – due entirely to the RMD deferal. Thanks
Permalink Submitted by Bruce Steiner on Fri, 2017-05-26 01:54
Excellent planning.