Taxable IRA Distribution

[Attie]

I have a client that was divorced in 2025. They had a QDRO that stated that the husband had to give her 1/2 of his IRA. She received a check and deposited it in her checking account and has done nothing else with it.

In January she received a 1099R in her name and number with box 7 marked with a normal distribution code. She is insisting that because this came thru as a QDRO order, that IRA distribution is not taxable to her.

I did research on QDRO's because I don't see them often and can find nothing that makes this tax free.

I believe it should have been set up to go into her IRA account in order for it to be not taxed as a distribution. 

Just checking to see if I missed anything. Is there some quirk in the law that I didn't find?

[abctax55]

You are correct, she is wrong.  It 'should' have been a trustee - to- trustee transfer.   She got the cash rather than it going into a retirement account in HER name.

Big oops - 

[IRonMaN]

Wife should have consulted with a professional other than her hair stylist.  She got the cash, she has to report the taxable income shown on the 1099R.

[dd4vols · Accepted solution]

@Attie , you are correct.  Had she listened a little more closely to her attorney (well maybe), or consulted you in advance, she would have known to follow the steps you are telling her.  I have been a practicing CPA for about 40 years, and I have never seen a victory for the recipient spouse because "she thought it was non-taxable if paid directly to her".  If she keeps insisting she is correct, then hand her documents, and softly insist she try another tax preparer.

[Attie]

You're right. I think she was taking her husbands and his family's advice. Don't think she had any proper information. It's too bad. It is going to cost her about 6,000 dollars in tax.

thank you for your response

[Attie]

Thanks for your reply. I can't find any button that is "Accept as Solution. I have thought about telling her she need to take her info back and find someone else. Maybe if two tax preparers tell her she's wrong she will believe it.

[BobKamman]

They are so excited when they hear the first part "You won't have to pay tax on this  . . ." that they don't hear the second part " . . . if you roll it over to your own IRA."

[TaxGuyBill]

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@Attie wrote:

They had a QDRO that stated that the husband had to give her 1/2 of his IRA.

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I don't think a QDRO applies to IRAs; I thought it only applies to employer plans.

While an IRA can be split for divorce, I don't think withdrawing from it is exempt from the early withdrawal penalty.

The taxpayer can check if there was any Basis in that IRA.  I'm not entirely sure if the Basis would be split based on the IRA split, but my first guess is that it would.

[BobKamman]

Good point.  Here's an article about splitting an IRA in a divorce. 

https://www.vanclieflaw.com/post/dividing-iras-in-divorce-why-a-qdro-is-not-necessary-to-assign-ira-...