In the unfortunate event that a marriage ends in divorce, it may be useful to understand the consequences on the spouses’ IRAs. It should be noted that this is a complex subject that warrants consultation with an attorney.
Section 408(d)(6) of the Internal Revenue Code governs the matter of a transfer of an IRA in divorce. And the Code states that the transfer of an individual’s interest in an IRA to a spouse or former spouse is not a taxable transfer. The transfer is to be treated as from a spouse, not from an unrelated individual.
What’s required to make this tax-free transfer is a decree of divorce, a decree of "separate maintenance," or a written instrument incident to such decree. A judgment of dissolution would be a decree of divorce. An order dividing the IRA could be entered as part of such a judgment or at any time after the judgment is entered.
Mechanics of an IRA Transfer
The actual transfer is fairly simple and can be accomplished in one of two ways:
Securities can be liquidated or transferred in kind and expenses may be shared or paid by one of the parties. It’s advisable that the court order spells out the terms of the transfer to avoid unnecessary delays or the need for further negotiation
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity and may lose value.
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.
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