Divorce can have important IRA tax consequences. If you’re divorced or legally separated by year end, you generally can’t deduct contributions you make to your former spouse’s traditional IRA. Taxable alimony and separate maintenance payments typically count as compensation for IRA contribution limit purposes. To divide IRA assets tax-free, the transfer generally must be made under a divorce or separation decree as an IRA-trustee-to-IRA-trustee transfer or transfer incident to divorce. Also, withdrawing funds from your own IRA to pay a divorce settlement may trigger income tax and, if you’re under age 59½, may be subject to a 10% early distribution penalty. Contact us for more information.
