Roth 5-Year Rule and Transfers Incident to Divorce

[QDROphile]

Grey divorce (both over 59 1/2 ), Roth IRA has aged 5 years, Roth IRA balance is divided incident to divorce and spouse's "new" Roth IRA is the transferee of the Roth distribution.  Does the spouse's Roth IRA start the 5-year clock anew or does it benefit from the 5-year maturity of the source Roth IRA?

I am not surprised the the regulations under IRC 408 and IRS publications do not address this, but I do not find much secondary material venturing an answer.  One that does appears to go with the spouse Roth having the benefit of the age of the original Roth, drawing from the rules relating to dividing basis in an IRA transfer. 

[BruceM]

I've checked my sources and can find nothing definitive. But TR 1.408-8(A-5)(a) and IRC section 401(a)(9)(A)] make clear that when a spouse is named sole beneficiary on deceased spouse IRA and makes the election to roll over the IRA into his/her own, the funds are intermingled and so fall under the rules effecting the surviving spouse. It would seem logical that an IRA or ERISA plan directed by the divorce decree to the spouse, that once the assets are in the divorced spouse's IRA, they will fall under rules affecting that spouse meaning the divorcee's holding period receiving the rollover would apply. Similarly, the 5 year holding period on the Roth component of a 401(k) Roth will reset to whatever the holding period is on the Roth IRA it is rolled into, not the holding period of the 401(k)-Roth.

[QDROphile]

Your analysis is intelligent and not inconsistent with any authority known to me.  As with some other Roth phenomena, the "fairness" in any particular situation is questionable, explained only by some practical considerations.  One of those considerations is the ease and clarity of accounting.  It is very simple to have a rule that a Roth IRA clock is set at the opening of the Roth account (requiring a deposit), without regard for the character of incoming funds, such as the aging in a Roth 401(k).  To look at the incoming funds would be more complicated.  A Roth IRA transfer incident to divorce, at least when the transferee does not already have a Roth IRA, requires a new Roth IRA in the name of the transferee,  requiring the 5-year clock to start on the new IRA.

Another way to approach it (apparently not taken by the law), would be to "split" the IRA and maintain the character of the funds (already matured 5 years) in the "spun-off" account.  The IRA owner would still have to qualify by age for tax free distribution.  Under the circumstances, this would seem more appropriate (especially when both parties are older than 59 1/2 and the divided Roth IRA is older than 5 years).  But a general rule that examines the maturity of the incoming funds rather than the age of the recipient account wold be much more complex and require more record keeping.

Thank you for your efforts to determine the mandated outcome and share.