Can I cash out a Roth IRA from a divorce settlement?

I received a Roth IRA in a divorce settlement. Can I cash it in without a penalty or tax?

Marriage / Divorce, IRAs, Taxes
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October 2016

As with many of these questions, it depends!

If you are over 59 1/2 years of age at the time of the distribution, and you and your ex spouse have had the Roth IRA for less than 5 years, you would be subject to income taxes on the earnings, but not penalties

If you are over 59 1/2 years of age at the time of the distribution, and you and your ex spouse have had the Roth IRA for more than 5 years, you would not be subject to income tax or penalties.

In general, if you are less than 59 1/2 years old and you and your ex-spouse have had the IRA for less than 5 years, your early distribution could be subject to penalties, and the earnings would be subject to income tax.

If you use the money for one of the following reasons, you could avoid the penalty, but not the tax if:

- You use up to $10,000 (lifetime maximum) to pay for a first-time home purchase.

- You use the withdrawal to pay for qualified education expenses.

- You become disabled or pass away.

- If you are unemployed, you use the withdrawal to pay for unreimbursed medical expenses or health insurance.

- You make substantially equal periodic withdrawals until you reach 59 1/2 years of age.

October 2016
October 2016