Division incident to Divorce
I am a family law attorney. I have heard that an IRA can be transferred tax free with a separation agreement, which in my state is a contract, and also that it is best to wait until the divorce is finalized. Which is true? Also, what are the tax consequences to both parties is a QDRO is used?
Permalink Submitted by Alan - IRA critic on Fri, 2018-06-22 19:12
Sec 71(b)(2) specifies the requirements for an IRA to be transferred “incident to divorce”. A separate maintenance agreement also complies with this requirement, so there is no need to wait until a divorce is finalized. A QDRO is required to transfer a qualified plan, but is not required for an IRA transfer. A QDRO will cost considerably more, and while in most cases could still secure the transfer, it is costly and unnecessary for an IRA transfer. Such transfers are not reported on a 1099R or on either spouse’s tax return. If the IRA of the transferor includes basis, a pro rated amount of such basis is also transferred to the transferee spouse.