How to Split an IRA
Splitting an IRA requires careful planning.
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Splitting a retirement account is not as difficult as splitting the atom, but it does require some attention to detail. How you handle this task depends on why you want to make the split. Failing to follow the proper procedure when splitting an IRA can result in big tax penalties for early withdrawal of the funds in the account. Fortunately, making the split isn't difficult.
Divorce
Step 1Determine the percentage of the split. An IRA is usually only one asset couples must split in the divorce. Your ex might get half of the IRA, one-third or some other percentage. Agree to the exact percentage.
Step 2Write the details of the split into the divorce agreement with the exact percentages. Include language to indicate that the split is to satisfy the terms of the divorce. Make sure you specify that it is not a cash withdrawal and is therefore a tax-free transaction.
Step 3Your ex should open an IRA account with the financial institution of her choice and provide you or your attorney with information about the account.
Step 4Instruct your financial institution to transfer the correct percentage of the IRA into your ex's new IRA account. You may need to provide them with a copy of the divorce paperwork. Your plan administrators will roll the funds into your spouse's account.
Death
Step 1Decide who you want to inherit your IRA when you die, and what percentage of the account each person will receive.
Step 2Collect the full names, dates of birth, addresses and Social Security numbers of your beneficiaries. Having this information will make them easier to locate at the time of your death.
Step 3Complete the beneficiary form provided by your IRA administrator. List each beneficiary, their information and the percentage of the account you'd like them to receive. You can divide the account equally among two people, or give several people different shares.
Diversification
Step 1Open a new IRA account with the same financial institution or a different institution.
Step 2Instruct the plan administrator for your original IRA to roll a percentage of the funds, or a set amount, into your new IRA account.
Step 3Wait for confirmation that the funds have been transferred. Contact the administrator for your new IRA and designate how you want to invest the funds in the account.
References
Tips
- Keep records of everyone you talk to, and copies of all documents involved in splitting your IRA.
Warnings
- Don't have the plan administrator issue a check directly to you and to your ex. Doing so could trigger tax penalties. Instead, instruct that funds be sent directly to the new accounts.
Writer Bio
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.