I am under the age of 59-and-a-half and have been ordered by a divorce court to take money out of my traditional IRA to pay my former spouse. Is there any way I can avoid the 10% early withdrawal penalty?
The only divorce-related exception for IRAs is if you transfer your interest in the IRA to your former spouse, and the transfer is under a divorce or separation instrument (see IRC section 408(d)(6). The rules for this transfer either:
1. Changing the name on the IRA from your name to that of your former spouse (if transferring your entire interest in that IRA), or
2. A trustee to trustee transfer from your IRA to one established by your former spouse. In this case a rollover from your IRA to your former’s spouses IRA does not qualify.
If neither of these options work for you and/or your former spouse you will owe the 10% early withdrawal penalty (Simple IRA distributions incur a 25% additional tax instead of 10% if made within the first two years of participation) unless you qualify for one of these exceptions:
1. After participant/IRA owner reaches age 59
2. Permissive withdrawals from a plan with auto enrollment features
3. After death of the participant/IRA owner or total and permanent disability of the participant/IRA owner
4. Qualified higher education expenses
5. Series of substantially equal payments
6. Qualified first-time homebuyers, up to $10,000
7. Because of an IRS levy of the plan
8. Amount of unreimbursed medical expenses (>7.5% AGI; after 2012, 10% if under age 65)
9. Health insurance premiums paid while unemployed
10. Certain distributions to qualified military reservists called to active duty
11. If withdrawn by extended due date of return
12. In-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 days
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Questions for Deborah Ritz can be e-mailed to The Weekly Adirondack at WeeklyADK@yahoo.com