I am 44 years old. Please read this excerpt from my Divorce decree…
“Regarding division of retirement accounts, specifically Husband’s retention of his IRA, the parties specifically state Husband will be liquidating said account in it’s entirety by December 31, 2012, and upon the liquidation
of same, Husband shall be solely responsible for any tax consequences or penalties due to the liquidation or withdrawal of said funds and shall hold Wife harmless thereon; and said tax consequences were taken into consideration by the parties when they entered into the property settlement set forth herein.”
I am told this is an odd thing to include in a divorce decree. I think this was a ploy to make me pay taxes and penalties to break me financially. I will be asked about it and I am late in doing it. I want to meet my obligation and avoid both taxes & penalties by doing one of the following…
Option 1: I could “liquidate” my IRA by rolling it over to another IRA with another broker. Specifically, I would sell all stocks & funds in the IRA, converting them to cash. That cash would be deposited into a different IRA account with a different broker. Does this meet my obligation? Does this action meet the definition of liquidating?
Option 2: I could elect to receive an early cash distribution subject to tax and penalties. The brokerage would file a 1099R coded as early withdrawal. But I would take the cash and deposit it into a qualified IRA plan within 60 days. My accountant says he would recode the distribution as a rollover at tax time. Therefore no penalties or taxes are owed. Does this method more clearly meet my obligation? I would rather not have to do this.
Which option is better and why?