Roth IRA Divorce Transfer | Ed Slott and Company, LLC

Roth IRA Divorce Transfer

A client who has $75,000 in a Roth with $33,000 in contributions is awarding his spouse $30,000 to her Roth. The qualified divorce transfer form does not mention anything about contributions vs. gain. So when she has the $30,000 in her Roth will she not be able to touch it? Is it considered all gain? $33,000 is 44% of $75,000 so do we consider that 44% of her $30,000 is contribution ($13,200)? Does that mean that he is only left with $19,800 (44%) in contributions for his remaining $45,000 that's in his Roth?

The transfer includes a pro rata share of the Roth basis. On the date of the transfer, if client retains 60% of the total Roth value at that time, then client will retain 60% of the basis, which would be 19,800. Each spouse should make this basic calculation at the time of the divorce transfer since they will each be responsible for tracking their Roth basis into the future. You are correct that the receiving spouse will have a regular contribution basis of 13,200 if the value upon transfer remains 75k. If the Roth gains from here she will receive less than 13,200 of basis, if it drops in value she will receive more.  The reason for that her  award is fixed at 30k.

 

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