IRA Rollover Trap (in Divorce Cases)
Monday, August 11, 2014

In divorce cases, it is normal to split IRA accounts between spouses.  Normally, this is done by one spouse rolling over a portion, oftentimes half, of his/her IRA account into another qualified IRA account in the name of the other spouse.  This is a non-taxable event.  However, a recent tax court case and a change in the procedures by the Internal Revenue Service have set limitations on the number of IRA rollovers permitted.  

If more than one IRA is rolled over in a 12-month time period, that could create a taxable event.  In other words, if a spouse rolls over an account in August of 2014, and then in July of 2015 pursuant to a divorce rolls over another IRA account, the second rollover could be treated as a taxable event subjecting that spouse to ordinary income taxes.  The lesson is to be careful in doing IRA rollovers and time the rollovers to occur at least one year apart.  

 

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