How to Handle an IRA Received in Divorce

If you have received money as part of an IRA divorce settlement, then you will need to invest it. The money will need to be divided in a direct transfer, sometimes known as a "transfer incident to a divorce". An important part of the settlement is making sure that the money rolls over correctly.

Rolling the IRA Divorce Settlement Over

Before you can take the money, you will need to make sure that it is specifically included as part of the divorce settlement. If it is not mentioned in the settlement, it is considered taxable income. You can only roll the money from the settlement into another IRA, or a fixed annuity in your name in order to keep it tax-free.

IRA Divorce and Tax

You cannot withdraw from the fund before you have reached the age of 59 1/2. If you attempt to do so, you will incur a 10 percent withdrawal penalty. A rollover IRA is treated the way other retirement accounts are treated.

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