Guest LLGCPA Posted July 6, 2011 Posted July 6, 2011 I tried searching and I'm sure this has come up before, so please humor me. On what dollar amount is the RMD calculated in the year of divorce when 1/2 was transferred to the ex-spouse pursuant to the divorce decree? Example: 12/31/10 value was $2,000,000. Divorce takes place 3/1/11 and $1,100,000 is transferred to ex-spouse (1/2 of FMV). This leaves $1,100,000 for IRA holder. Thanks in advance.
Guest Sieve Posted July 7, 2011 Posted July 7, 2011 The real question is why someone receiving an MRD is getting a divorce at his/her age? Unless the sposue owning the IRA/plan account is taking the distribution into income (& therefore the distribution meets his/her MRD requirement), then the MRD will be as per usual: a percentage of the value as of 12/31/2010 (distribution to spouse notwithstanding). (See 401(a)(9)-5, Q&A-4 for some special rules re: divorce & designated beneficiary.)
mbozek Posted July 7, 2011 Posted July 7, 2011 Reg 1.408-4(g) provides that any amount transferred to the ex- spouse on account of divorce shall not be considered a distribution to the IRA owner or spouse and the interest transferred to the spouse shall be considered the spouse's IRA. Therefore the spouse will not have to take an MRD for 2011 but will have an MRD for 2012 based on the IRA value as of 12/31/11. The 2012 Rmd of the spouse /IRA owner after transfer of 1/2 of the IRA to the ex spouse will be based on the reduced value of the IRA on 12/31/11. mjb
Guest LLGCPA Posted July 7, 2011 Posted July 7, 2011 He (owner) is 74, she is 60. Married 25 years - I say why bother, but whatever. He hasn't taken his RMD for 2011 yet since he has till the end of the year. But basing it on the 12/31/10 value (twice what it is now) doesn't seem right or logical.
GMK Posted July 7, 2011 Posted July 7, 2011 Therefore the spouse will not have to take an MRD for 2011 but will have an MRD for 2012 based on the IRA value as of 12/31/11. I'm a little confused by who's who. In this sentence, "spouse" is the ex-spouse and not the IRA holder, right? And since the transfer is not a distribution to the IRA holder, the IRA holder still has an RMD/MRD due for 2011, based on the 12/31/2010 balance, yes? or am I more confused that I thought?
ETA Consulting LLC Posted July 7, 2011 Posted July 7, 2011 Here's what I gather: A taxpayer with $2M is due an RMD based on that amount. At the same time, his ex-wife is receiving a tax-free transfer of half of his account due to a divorce decree. So, he is wondering if he can have his wife take a distribution from her half in order to satisfy the RMD requirement and allow him to leave a larger balance in his IRA, or if he must satisfy the entire distribution amount from the half he has remaining. There are ways to structure the agreement so he wouldn't have to take the entire taxable distribution (and shift some of it to her), but she would have be willing to cooperate; which may not be the case. I don't think it looks good for him. Good Luck! CPC, QPA, QKA, TGPC, ERPA
mbozek Posted July 7, 2011 Posted July 7, 2011 Therefore the spouse will not have to take an MRD for 2011 but will have an MRD for 2012 based on the IRA value as of 12/31/11. I'm a little confused by who's who. In this sentence, "spouse" is the ex-spouse and not the IRA holder, right? And since the transfer is not a distribution to the IRA holder, the IRA holder still has an RMD/MRD due for 2011, based on the 12/31/2010 balance, yes? or am I more confused that I thought? The ex spouse who receives $1.1M transferred to an IRA as a result of the divorce will not have an MRD in 2011 because there was no value in the IRA as of 12/31/10. The spouse who had and IRA with a $2M value on 12/31/10 will have to take an MRD based on $2M in 2011. mjb
jpod Posted July 7, 2011 Posted July 7, 2011 The mistake (by the IRA owner's lawyer?) was not accounting for the MRD (and the reduction in assets attributable to the tax liability) before splitting the IRA 50-50.
GMK Posted July 7, 2011 Posted July 7, 2011 The spouse who had and IRA with a $2M value on 12/31/10 will have to take an MRD based on $2M in 2011. Thanks. That's what I thought it all meant.
K2retire Posted July 7, 2011 Posted July 7, 2011 The mistake (by the IRA owner's lawyer?) was not accounting for the MRD (and the reduction in assets attributable to the tax liability) before splitting the IRA 50-50. True -- but it likely would have been she gets half of the cash after the RMD, plus half of what is left.
mbozek Posted July 7, 2011 Posted July 7, 2011 The mistake (by the IRA owner's lawyer?) was not accounting for the MRD (and the reduction in assets attributable to the tax liability) before splitting the IRA 50-50. Maybe they swapped other assets to equalize the 46k tax bill. Or he kept more capital assets. mjb
Appleby Posted July 11, 2011 Posted July 11, 2011 The real question is why someone receiving an MRD is getting a divorce at his/her age? Why not? if it makes his/her happy... Life and Death Planning for Retirement Benefits by Natalie B. Choatehttps://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/ www.DeniseAppleby.com
John G Posted July 20, 2011 Posted July 20, 2011 Example: 12/31/10 value was $2,000,000. Divorce takes place 3/1/11 and $1,100,000 is transferred to ex-spouse (1/2 of FMV). This leaves $1,100,000 for IRA holder. Forget the personal question, I would like to know how $2 million when split in half became 1.1 + 1.1 = 2.2 million in three months! That is an annualized 46% rate of return. Spouse might wish to reconsider the divorce and maximize future net worth by letting the investment compound! Just another way of looking at the facts.
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