72 t withdraw after divorce

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L1: 72 t withdraw after divorceHi,My wife and I have been taking a 72 t withdraw for about 5 years. I am 57 and my wife is 54. The account is my retirement roll over IRA. We may be getting a divorce with the funds split 50% each. Can we just split the monthly income or do we have to start a new 72 t withdraw with the lower interest rate and less funds and younger age for my wife. Thanks for your time.phoneman2008-10-22 08:40, By: phoneman, IP: []
L2: 72 t withdraw after divorceGood morning phoneman:Sorry to hear about the potential divorce but that’s an item for the two of you to work out.As to your 72(t) distributions should the divorce occur, split the monthly distributions until your 5-years and age 59.5 requirements are satisfied. After that you can split the corpus of the IRA under the terms of your QDRO.The only TWO allowable exceptions for changing a SEPP Plan is death and disability … not divorce. So structore the divorce decree to split the monthly distributions until such time as you reach the first date to modify the plan (use the calculator on this site) and then split the IRA corpus.Good luck.Jim2008-10-22 08:52, By: jim, IP: []

L2: 72 t withdraw after divorceYour posting has misleading wording. “My wife and I have been taking a 72t withdrawal….” I believe you mean that YOU have been taking it since you state later that it is from your rolloverIRA.Assuming I am correct, then you have to be careful in how you arrange things in your divorce stipulations because YOU will be subject to the income taxes (federal and state, unless you are in PA which does not tax retirement distributions after 59 1/2, and even under that we have a “return of contribution” provision in PA before it is taxable). So you should only agree to give her 50% of your net distributions after reducing them by the applicable taxes that you will be paying if you do not split the account until after you are 59 1/2. But that might not then qualify as a QDRO.However, for her, there would be an exception because there is no penalty for withdrawals from an IRA to an “alternate payee” which is split is accordance with a QDRO even though she is under 59 1/2. ( See J K Lasser “Your Income Tax 2008 (for 2007 taxes)”, section 7.12, page 161 and 162).So you could split it before 59 1/2 if it were not for the fact that it is in a 72t. I doubt if she would want to continue her share under a 72t until she is 59 1/2 if she could take distributions without penalty at any age, except for the 72t restrictions.2008-10-22 11:32, By: dlzallestaxes, IP: []

L2: 72 t withdraw after divorceDlzallestaxes and Jim Thank you for the help.Phoneman2008-10-23 08:52, By: phoneman, IP: []

L2: 72 t withdraw after divorceI agree that to avoid a major risk of busting the 72t plan, the settlement should not split up the IRA until after you are 59.5. If you can afford it, the settlement could include your paying her from your distribution on a tax adjusted basis. You would owe taxes on the distribution, but if you transfer tax free money, the amount should be adjusted downward to reflect that she will not owe taxes because you have paid them.If it comes into play, a distribution from the IRA to an alternate payee is NOT exempt from the early withdrawal penalty. The QDRO exception only applies to distributions from an employer plan, not from an IRA. If an alternate payee rolls over a QDRO settlement to an IRA and then takes an IRA distribution, the penalty will apply unless a different exception comes into play, eg age 59.5 or a 72t plan. A QDRO is not even necessary to split an IRA, that is usually accomplished by a “transfer incident to divorce”. See Pub 590, p 29.I wouldl re check that Lasser’s reference re QDRO – to see if it was interpreted correctly, or possibly just in error. 2008-10-23 11:57, By: alan+s., IP: []

L2: 72 t withdraw after divorceAlan is correct. QDROs apply only to employer retirement plans, not IRAs. I missed that nuance, and stand corrected.2008-10-23 13:14, By: dlzallestaxes, IP: []

L2: 72 t withdraw after divorceOK … my bad in using the term “QDRO” for this post. I was under the mistaken assumption that “QDRO” was the document resulting from a divorce. After checking with my handy-dandy attorney, I have it straight now. I should have used the term “Divorce Decree” rather than “QDRO.” After all, four letters is easier to type than 13.Phoneman, by all means, when everything is settled legally,simply distribute from your personal checkbook half of the monthly, after-tax SEPP distribution to your “X.” Definitely do not have the IRA custodian send funds directly to her.Jim2008-10-24 08:46, By: jim, IP: []