Divorce – continue receiving full 72t payment?
L1: Divorce – continue receiving full 72t payment?
We have a client that is on 72t, currently age 52, and started his first 72t withdrawal on 8/3/09. He receives $2249.13 gross per month. Has approx. $597k current balance (started with $568k)
He is most likely getting divorced, and expecting that his wife will get a QDRO for $200k. Can our client continue to receive his full 72t monthly payment with a lower account balance after the QDRO $200k is transferred to his wife?
He does not plan to change the amount of his monthly withdrawal.
2011-10-13 21:22, By: BRS, IP: [184.108.40.206]
L2: Divorce – continue receiving full 72t payment?
Someone will probably give you a better answer, but…
ODROs don’t apply to an IRA, they apply to employer plans. However, they also aren’t needed if the division is spelled out in the divorce documents. Refer toPLR 2000-27060, PLR 2000-50046 & PLR2007-17026 (and others). If he transfers $200,000 to spouse
per divorce, he will probably end up with a monthly payment of $1,495.65 (1-(200000/597000)*2249.13)
2011-10-13 21:56, By: Gfw, IP: [220.127.116.11]
L3: Divorce – continue receiving full 72t payment?
I agree with gfw that most of the more recent IRS letter rulings have resulted in a pro rated reduction of the 72t payment in accord with the % of the IRA transferred to the receiving spouse under 408(d)(6) as a non taxable transfer.
But the underlying problem is that these PLRs requestwhat the applicant believes is reasonable and the IRS either approves or disapproves. They never expound on what other options would be permitted. There was a ruling over
10 years ago that the spouse with the 72t plan could continue the 72t distributions unchanged even though part of his IRA had been lost under the divorce decree. Yet another allowed both spouses to take distributions that totalled up to the original 72t payment.
Therefore, the real problem is trying to avoid filing your own request and assuming the IRS will agree to what you want to do before you commit. There has not been enough consistency from the IRS to know exactly what they will approve or disapprove. A PLR
will cost around 10k plus legal fees.
For these reasons, it is definitely better to avoid the 72t IRA being part of the settlement. For example, there could bea partial settlement if the plan is fairly close to ending with the subject 72t IRA being partitioned only
after the plan ended. Very few divorce attorneys are familiar enough with the situation to address it up front with a goal of avoiding partitioning of the IRA until after the plan ends. If there is to be a PLR, who is to pay for it?
But if the settlementhas beendone and the taxpayer wants to avoid a PLR and take a chance on what is the most likely scenario the IRS would approve, it would be the pro rated reduction of the 72t payment in accord with the
amount tranferred starting with the year of the transfer as gfw indicated.
2011-10-13 22:41, By: Alan S., IP: [18.104.22.168]