Withdraw IRA to pay off taxes && divorce

from previous employer). I have about 3x the funds in my IRA as she does in her

401k. We agreed to split the retirement funds during mediation. Also, I make about 5x what she does as a contractor...I think i am in the 28%, while she is in the 15%. I want to be able to cover the tax bill & the tax responsibility for withdrawal.

No idea what your question is, but I'm driven to suggest that the IRA be split via QDRO so your wife is the one to take the withdrawal, and be taxed at her rate instead of yours. If 28% is correct, it will cost you

38% to take a withdrawal (including the 10% penalty) vs a total 25% for her. $2000 or so in tax savings is nothing to ignore.

I think you mean a QDRO-like court order.

QDROs do not apply to IRAs, but there are many courts out there willing to sign a QDRO-like order for an IRA, and that should get you out of early distribution tax.

For those of you who are interested in the technical aspects of this.....

In order to properly split qualified retirement plan assets tax-free, you will need a QDRO issued by the court. IRC Sec 414(p) very explicitly defines a QDRO. Failure to conform to sec 414(p) will no doubt lead you into litigation with the IRS. Sec 414(p) has nothing to do with IRAs.

In order to be tax-free, splitting of IRAs incident to divorce must conform to Sec 408(d)(6). This requires a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) to order the split. Sec 71(b)(2)(A) says that the term divorce or separation instrument means: (A) a decree of divorce or separate maintenance or a written instrument incident to such a decree Therefore, in order to split the IRA in a tax-free transfer, you need something from the court or some other signed written agreement that spells out how the IRA is to be split. The optimal method for splitting the IRA is a trustee to trustee transfer. A QDRO that includes a statement that identifies the IRA to be split and how to split to it, satisfies the requirements of Sec 408(d)(6).

"Alan" wrote

To the OP:

Please understand that this just splits the IRA or other pension into two separate IRA's or pensions.

Any subsequent distribution is still subject to all applicable taxes to be paid by the party taking the distribution.

Also, any divorce agreement to have each party pay half the taxes is unenforceable with the IRS. They can still come after either or both spouses for any remaining unpaid taxes. ie: you're not protected from collections on your exes unpaid taxes from a joint return. This could leave the paying spouse having to take the non-paying spouse to court in a civil matter, after settling with the IRS.

I'd see if there was a way to get the taxes paid prior to signing off on a decree and thinking that's the end of it. Make sure it's handled in advance.

And at this late in the game, if the divorce won't be final until 2013, then take the distribution, pay the taxes (past and present) and file a 2012 joint return so you both know it's been taken care of and you equally split the tax bill. Then finalize the divorce in 13 and go your separate ways.