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I was awarded an ira during the divorce. We don’t have a…

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I was awarded an...

I was awarded an ira during the divorce. We don’t have a quadro though. I want to withdraw an amount with out penalty once the transfer is made. Is that possible?

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Currently the account is in my ex husbands name win a tradestation ira. They are saying I need to open an account with them to transfer the money but can’t tell me if I can withdraw money without penalty

Submitted: 8 months ago.Category: Tax
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11/21/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,759
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is***** am reading over your inquiry. I will respond to you shortly.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

If you are not age 59-1/2 years old, the 10% early withdrawal penalty will apply. In addition, the withdrawn amount is going to be taxed as ordinary income to you. SEE BELOW:

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The transfer of all or part of your interest in a traditional IRA to your spouse or former spouse, under a decree of divorce or separate maintenance or a written instrument incident to the decree, is not considered a taxable transfer. As long as the receiving spouse maintains the funds in the IRA, neither spouse will pay income tax or penalty for early withdrawal.

REFERENCE SOURCE:

http://www.bankrate.com/finance/taxes/moving-ira-assets-under-divorce-decree.aspx

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Customer reply replied 8 months ago
I was told there was a way to do it that allowed for me to withdraw and be taxed but not receive the penalty?
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

My thought is no, but I could be wrong. I will check into this and get back to you shortly. Thank you for your patience.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

Hello again. I stand corrected. The 10% early withdrawal penalty will not apply as the IRA transfer was incident of a divorce. SEE BELOW:

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Under IRS rule 72(t)(2)(C), the alternate payee of a qualified plan can withdraw funds pursuant to divorce without the 10% early withdrawal penalty, but ordinary income taxes will still need to be paid. For a spouse with little or no income in the first year of divorce, this can be a source of much-needed cash.

REFERENCE SOURCE:

http://familylawyermagazine.com/articles/retirement-accounts-in-divorce-four-common-questions/

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In closing, my goal is to provide you with the best experience possible! Hopefully, the service that I have provided has earned a positive rating! Please remember to rate my service by selecting 3 or more stars at the top of the screen before you leave today. Thank you in advance. If you require further assistance, use the reply box and let me know.

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Customer reply replied 8 months ago
Is qualified plan same as IRA, if it goes from his Ira to my Ira then I withdraw then this law should apply? Without a quadro?
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

No it is not, after I sent the information to you, I was reading more on the matter. I am still writing more to come. Hold tight.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

There are different rules for QDRO related transfers and transfers incident to divorce. SEE BELOW:

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The major difference between a QDRO and a transfer incident to a divorce is that a transfer incident to a divorce does not allow for the receiving ex-spouse to receive the funds penalty-free if not rolled over into a receiving IRA. With a QDRO, although the funds are taxable to the receiving ex-spouse, there is no 10% penalty if the funds are withdrawn prior to his or her reaching age 59½. If the originating account is an IRA, the 10% early withdrawal penalty will apply in addition to ordinary income tax.

REFERENCE SOURCE:

https://financialducksinarow.com/9176/qdro-vs-transfer-incident-to-a-divorce/

Sorry for the confusion. I guess we both learned something here today. SMILE.

As there was no QDRO, the 10% early withdrawal penalty will apply as I initially thought.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

Additional Info/Form 5329 Early Withdrawal Penalty Exceptions:

Qualified retirement plan distributions made to an alternate payee under a qualified domestic relations order (does not apply to IRAs).

REFERENCE SOURCE:

https://www.taxslayer.com/support/218

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Customer reply replied 8 months ago
If I take it out, I saw there was something about a possible 25% penalty if the Ira was less than 2 years old?
Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

If you meet one of the general exceptions, you can make a withdrawal without incurring the 10% early withdrawal penalty. For the general exceptions, refer to the following link.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

I will check on the matter of the 25% and get back to you on this.

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Tax Professional: Tax.appeal.168, Tax Accountant replied 8 months ago

What type of IRA is it? Traditional, ROTH, SIMPLE, etc.?

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