Divorce for Older Couple - IRA & QDRO

[GodFather]

New client.  First time I will prepare return is for 2024.  He was referred to me through a professional relationship.  Info:

- Divorce finalized in July 2024

- I asked him to send me copies of his 2023 return along with any additional information that will be useful for me to review.  Having trouble uploading the info to Link, but will try again or will email it to me.  Asked for the final divorce decree as well.

- 73 years old with RMD's in, in 2024 from IRA and his 401k. 

- He tells me divorce decree states income was split 50/50 between he and his wife, amicably.  All funds were direct deposited to the ex-wife's account, not to my client.  He never "touched" the money.  

- Personal IRA with Fidelity, 401k with NY Life.  Both firms told him the 1099-R's will be sent only to him, full amount of the distributions are taxable.  They will reflect the amounts direct deposited to the wife on his 1099-R.  Both the distribution amount and taxable amount will equal the entire distribution in his name only. 

- Does the reporting of the 1099-R's sound right?  Shouldn't the ex-wife receive a 1099-R for the portion deposited into her account?

- He indicated he did provide a copy of the divorce decree to both Fidelity and NY Life. 

Appreciate any thoughts or guidance on this one.  Thank you.  

[Jim-from-Ohio]

Does not sound right. wife should get her own 1099-R for what she actually received.

[abctax55]

IF the split was done properly (the attorney should know) via a QDRO, your client will get a F 1099-R for his RMD(s). 

She should get a F 1099-R for any distributions she took subsequent to the splitting/transfer of the funds to "her" retirement account.

If this wasn't done correctly via a QDRO - a discussion with the attorney might be in order.

[GodFather]

Thanks for chiming in, Jim.  That's exactly what I would have expected.  He is addiment that both Fidelity and NY Life said it is "all his".   

[GodFather]

Thanks ABC.

[IRonMaN]

Sounds like he is either confused or his attorney was confused and didn't get the QDRO taken care of yet.  Both should receive their own distributions from their own half of the account and both should get their own 1099R.

[abctax55]

Actually... she probably gets a F 1099-R for the QDRO transfer, but it should be marked as a transfer and zero taxable.  

Either your client is wrong (imagine that) OR it wasn't done correctly.

UNLESS, there's some odd thing that happens with government retirement monies that get shared with the ex.  The main recipient gets tagged with all of it, but the ex gets some of the distribution.  I've had ONE of those in my career 😉

[TaxGuyBill]

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@GodFather wrote:

- He tells me divorce decree states income was split 50/50 between he and his wife,

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If it is merely the "income" that is split, then he'll receive the 1099-Rs.  And he had a bad attorney.

If it was the retirements accounts (assets) that were to be split, then the IRA and 401k would be divided between them and each would have their own 1099-R based on their individual portion of the IRA and 401k.

[GodFather]

TAX Guy...yes, what you stated is exactly what happened.  The retirements accounts (assets) were split, and the IRA and 401k were divided between them equally.  That is what he said.  I simplified it obviously but should have been more specific in my post. 

[BobKamman]

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@abctax55 wrote:

Actually... she probably gets a F 1099-R for the QDRO transfer, but it should be marked as a transfer and zero taxable.  

Either your client is wrong (imagine that) OR it wasn't done correctly.

UNLESS, there's some odd thing that happens with government retirement monies that get shared with the ex.  The main recipient gets tagged with all of it, but the ex gets some of the distribution.  I've had ONE of those in my career 😉

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I think that just happens with military retirement.  The spouse gets the percentage awarded, after withholding on the retiree's payment.  So the retiree has as much withholding as possible, even if not needed, and gets to keep the entire refund.  

[Accountant-Man]

Since there are no more Alimony deduction nor alimony income, and it's a military pension, it has to be split into two separate accounts, his and hers.

Otherwise all will be taxable to him.

I had a long ago client who divorced and H got all the income, but deducted her half. She then included her half into income.

They did not get two separate 1099-Rs.

[BobKamman]

This is like one of these newspaper stories that says one thing in the headline and another in the article itself.  I don't see anything about a QDRO:  "divorce decree states income was split 50/50" -- QDRO's don't split income, they split accounts.  You need to read the decree.  It just might say, "the 2024 distributions shall be split equally between the spouses."  Then it was up to him to tell the payers where to send the money.  When you refer to "the ex-wife's account," what is that?  Just her bank account somewhere?  

Sometimes it takes a while to set up the receiving account for a QDRO.  This sounds like a temporary solution for 2024 until the dust settles in 2025.  

[BobKamman]

@Accountant-Man  Where did I say anything about alimony?  Let me guess, you're not in a community-property state.  

[qbteachmt]

"in 2024 from IRA and his 401k."

Splitting an IRA isn't part of QDRO. Employer plan requires QDRO (retirement plan or pension) and follows ERISA. IRA uses Transfer. So, that's really two different fruits.

"direct deposited to the wife on his 1099-R"

To the wife's account(s) as which type of account(s), is the important detail.

"Shouldn't the ex-wife receive a 1099-R for the portion deposited into her account?"

It's certainly taxable to her, if these went to non-retirement account(s).

Her share of his IRA would be direct, trustee-to-trustee transfer to her own IRA. Otherwise, it's a distribution from his account and he gets a 1099-R (and got bad guidance, because he would have signed for this).

They also distributed his own share to him?

For QDRO, she becomes the alternate payee. That means gets a share of the pension payout from the administration, not the (ex-)spouse. Or, the 401(k) split is transferred-rolled into her IRA.

[Accountant-Man]

Nope. NJ.