↓Skip to main content
  1. Posts/

IRA Growth: Who Gets the Dough?

·3 mins
Finance Smart-Saving Investing
Table of Contents

I’ve been there, friend – the r/personalfinance thread about divorce and IRAs has me nodding my head. 16 years post-divorce, and the IRA was never divided. Now, the question is: does the ex-wife get a share of the growth/earnings on her awarded IRA share? I’ve dug in, and here’s what I found.

Community Wisdom #

Some folks in the thread think it’s a no-brainer: “The ex-wife gets the growth, period.” (Thanks for the insight, u/FinanceNewbie90.) But others are more cautious: “It depends on the divorce agreement and state laws.” (Solid advice from u/FinancialFreedom123.) I’m with the latter – it’s not that simple.

State Laws Matter #

In the US, IRA rules are governed by ERISA (Employee Retirement Income Security Act). ERISA doesn’t dictate how IRA growth is handled in divorce, leaving it to state laws. Some states, like California, follow the “community property” rule, where both spouses share growth and earnings. Others, like Texas, use the “separate property” rule, where only the spouse who contributed to the IRA gets the growth.

The Taxman Cometh #

Assuming your ex-wife gets the growth, there’s another issue: taxes. The IRS considers IRA growth as ordinary income, and it’ll be taxed as such. If your ex-wife inherits the IRA, she’ll have to take required minimum distributions (RMDs) starting at age 72, which will increase her taxable income.

DIY or Hire a Pro? #

If you’re dealing with a complex divorce agreement or state laws, it’s time to bring in the experts. I’ve seen folks try to DIY their divorce agreements using online templates (I love this tool, but it has one fatal flaw: it doesn’t account for state-specific laws). Save yourself the headache and hire a divorce attorney or a financial advisor who specializes in divorce.

The Bottom Line #

In the end, it’s not just about who gets the growth – it’s about understanding the complex web of state laws, tax implications, and divorce agreements. Don’t assume it’s a simple “yes” or “no” answer. If you’re in a similar situation, take the time to research your state laws and consult with a professional.

What’s Next? #

If you’re dealing with a divorce and IRAs, here are a few next steps:

  • Research your state laws on IRA division and growth.
  • Consult with a divorce attorney or financial advisor.
  • Review your divorce agreement to see if it addresses IRA growth.
  • Consider hiring a professional to help with the process. FAQ:
  • Q: What happens if my ex-wife inherits the IRA and then passes away? A: The IRA will be subject to estate taxes, and the beneficiary will inherit the IRA, which will be taxed as ordinary income.
  • Q: Can I roll over my IRA into a different type of account, like a Roth IRA? A: Yes, but be aware that you’ll need to meet certain conditions, such as not having any outstanding loans or penalties.
  • Q: What if I’m not sure about the divorce agreement or state laws? A: Consult with a professional, such as a divorce attorney or financial advisor, to help you navigate the process.