Generally, withdrawing money from an IRA or similar retirement account prematurely is costly, in taxes and penalties. But this is exactly what must often happen in a divorce. Giving rise to special exceptions rendering retirement account transfers incident to a divorce free of taxes or penalties. If an entire IRA account is going to be transferred, it is permissible to simply change the name on the account from the original spouse-owner to the other spouse. For partial transfers of an account, the methodology is "direct transfer". In a nutshell, the owner spouse instructs the trustee to transfer a specified amount of the account's funds to a retirement account in the other spouse's name. The transfer must be in accordance with a divorce judgment, so timing is important. Pensions are divided via a different procedure, which I posted about in Floridians: Don't Take Your QDROs for Granted If You Are Entitled to Share in Your Ex's Pension.. Read more in this Fox Business news article: Moving IRA Assets Under Divorce Decree.
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