72(t) Payments and Qualified Domestic Relations Orders: Today's Slott Report Mailbag
By Sarah Brenner, JD
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I have a question about 72t
"If" I am 45 years old, and calculate the amount to withdraw from my ira under 72t via the RMD method, I understand that I must continue calculating the withdrawal via the RMD method every year until I am 59 1/2 years old. But Now what??? My question is- once I am 59 1/2, can I stop withdrawing from my ira even though I had started taking RMDs since the age of 45 (under the 72t plan) And then start taking RMDs again at 72 years old? Or if I start taking RMDs at 45, once I start taking RMDs, I can't stop taking yearly RMDs until I am dead?
If you could clarify if I have an option at 59 1/2 years old, or not, I would really appreciate it.
72(t) payments are a big commitment, but they do not lock you in forever! When you start taking 72(t) payments, you must continue these payments for at least five years or until age 59 1/2, whichever period is longer. Then, you can stop. At that point you will be in the sweet spot and can access your IRA without penalty if you choose or not take any distributions if you prefer. Of course, this period of freedom does not last forever. You are correct that once you reach the year you attain age 70 ½ required minimum distributions must start.
After 11 years of separation, my wife and I are finally getting a divorce. My wife had a retirement through the Ohio Public Employees Retirement System. This past February, with my consent, she rolled it over into a traditional IRA at her credit union in Georgia. In the separation agreement I am to get 50% of the value on the date of the divorce decree. Those funds will be deposited to a traditional IRA of my choosing. My interpretation is that because it was withdrawn from OPERS and rolled over to a traditional IRA for my wife that eliminated the need for a QDRO in the divorce decree. Is this correct?
I appreciate your time and will pay any reasonable fee you suggest.
You are right that when it comes to divorce, an IRA is different than a qualified plan. To split plan assets in a divorce a special kind of court order is needed due to ERISA requirements. This is called a qualified domestic relations order (QDRO). The same is not true of IRAs. IRAs can be split without a QDRO. You just need a court order. Even though the funds in your wife’s IRA may have come from an employer plan, because they are now in an IRA, they are subject to IRA rules. You will want to present the credit union with a copy of the divorce decree including instructions on how the IRA should be split. To avoid taxes and penalties, the funds should be moved directly by trustee-to-trustee transfer from your wife’s IRA to an IRA in your own name.
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