A divorced taxpayer was recently charged for withholding paid taxes on IRA withdrawals as a result of his divorce settlement. The case provides an important reminder that clients should be alerted to the tax implications when a divorce agreement is being hammered out. Here’s what happened:
The marriage was dissolved in 2014, and the former spouse was ruled to pay him $10,000 from her retirement account as reimbursement for his payment to her of liquidated retirement proceeds during marriage. Instead of withdrawing the funds from her retirement account and paying in cash, the ex-wife transferred the funds from her account to the ex-husband’s IRA.
The man, under the age of 59-½ at the time, withdrew amounts from both the new IRA and an older one without reporting or paying the 10% penalty tax for early distributions. Find out more.