IRA rollover to ex spouse for Back Child Support
Can IRA funds be transferred to an EX spouse to cover back child support without penalty by transferring as a rollover into exspouse’s IRA? If so, what paperwork is required by IRS to be provided to Investment co.? Is the original court order (from years ago) valid? or is a NEW court order required?
If penalty can not be avoided this way, are there valid alternatives?
Permalink Submitted by Alan - IRA critic on Fri, 2019-03-01 19:44
An IRA transfer incident to divorce must be done by a non reportable direct transfer to an IRA in the receiving spouse’s name. The divorce decree or associated court order must be provided to your IRA custodian, and the amount to be transferred must be clear. However, when your ex takes a distribution, taxes and penalty will be due because there is no penalty exception for an IRA distribution as there is for a 401k or 403b distribution to the receiving spouse under a QDRO. In this situation it may make sense to arrange for the spouse in the lower tax bracket, and/or the spouse that qualifies for a different penalty waiver to take the distribution since less is lost to the IRS. A tax adjusted settlement amount could be negotiated with each spouse splitting the tax savings.