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
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It depends on how old you are and how the settlement was made, if you are over 59 1/2 you can withdraw with no taxes or penalties. If funds are cashed out/distributed and then paid to the spouse/ex-spouse, this is considered a 'taxable event' to the owner of the original IRA. It is important that the movement of funds is done as a 'transfer' and not a 'distribution'.

What is required to make this tax-free transfer?  According to the IRS, as defined in IRC Section71(a)(2):

  • a decree of divorce;

  • a decree of "separate maintenance"; or

  • a written instrument incident to such decree, or a document.

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.

October 2016
October 2016