Hello
I have to transfer part of my IRA (the marital portion) to my ex wife as a result of divorce. My bank told me it will be coded as a normal distribution and I will get a statement at the end of the year for tax purposes.
The said it’s up to me to explain to the IRS why it should not be taxed.
This sounds a little suspicious to me. Can any of the experts weigh in please?
Thank you
Yes. Elevate the issue to more informed staff at the bank. Refer them to Tax code Sec 408(d)(6).
I agree with the above. One would think that between the 2 very exerienced lawyers, and a major bank (Citi), I should not have such issues. However, when I spoke to the bank, this is what they told me.I just called back, spoke to another person and he said as long as my instructions specify a “rollover” they will treat is as such. It remains to be seen, I guess. Thank you very much for the advice. I did not feel they were correct, and glad I posted this here.
If the lawyers are issuing these instructions, they need to replace the word “rollover” with “non reportable transfer”.
The lawyers were involved with drafting the settlement. I am actually glad they included the word “rollover” in it instead of “transfer.” It’s the Citi I have an issue with – one person says one thing, another one, a completely different one. Good thing I didn’t buy into “it’s a transfer, and you’ll need to explain to the IRS why it should not be taxable.” Like IRS would ever listen to me AFTER taking my money.
Not following your last post. Perhaps you transposed the meaning of each term. A divorce settlement should never be referred to as a rollover because funds cannot be moved from one spouse’s IRA to another by rollover. That is what Sec 408(d)(6) clearly states. A transfer from one account to another is not reported, so does not need to be explained except in the case where IRA basis is reduced for the transferor spouse and increased for the transferee spouse. This is indicated on a Form 8606 for each spouse the next time an 8606 would otherwise be required.
I think I meant Distribution vs Rollover as the bank uses these terms. They said if they code it as “Distribution” they will issue a 1099-R. Then it’s up to me to explain to the IRS why it’s not taxable. If they code it as a “Rollover” then it’s as if I opened another IRA account and moved some money from one IRA into it. Not taxable. I plan to call them a couple more times to make sure they do it right.
Trustee-to-trustee means I don’t douch the money, it goes directly from bank to bank. That’s understood.I think it’s more of how the bank does it internally and how they put it in their system. I don’t care what they call it as long as it’s not taxable to me.
Permalink Submitted by David Mertz on Fri, 2020-10-02 18:28
Do not let them do that! It must *not* be a distribution. An IRA can only be moved (in part or in whole) incident to divorce to an IRA owned your ex-spouse by non-reportable trustee-to-trustee transfer. It must be processed as a *transfer*, not as a distribution, no Form 1099-R is to be issued and the transfer is not reportable on your tax return. The transfer process is the same as you would use to transfer an IRA of yours to another of your own IRAs except that the receiving IRA will be one owned by your ex-spouse.