IRA in a divorce
Good afternoon. Individual who is going through a divorce has an IRA. Let’s say they are looking at taking out $10,000 to provide to previous spouse. If there has been a divorce decree filed and this is part of the terms, I assume the spouse receiving the $10,000 can open an IRA with another custodial and then the funds can be transferred without any tax consequences corrrect? Individual is under 59 1/2.
I believe QDRO is only for retirment plan assets such as 401(k) etc.
Thank you for your help in advance.
Permalink Submitted by Alan - IRA critic on Wed, 2020-07-01 19:00
Basically, yes. But the spouse who owns the IRA does not take out any distribution or they will be subject to tax and penalty. Rather, the decree states the amount that is to be transferred to the receiving spouse. This must be done as a non reportable direct trustee to trustee transfer to an IRA of the receiving spouse. There is no 1099R or taxable event resulting from this transfer. The receiving spouse would then take a distribution from their own IRA if needed and would report that distribution.