Which do you prefer? Roth or Traditional

[Philip Morris IV]

So if I have a 10m Roth IRA with a cost basis of 300k, she would get 5m in a 50/50 split.  But that 5m is probably 150k cost basis, and 4.85m "gains".  So the government would tax that gain as a taxable withdrawal.... and at 50% tax rate in California, it's probably something like 2.425m in taxes to be paid... so then the courts would likely take more of my assets to help her settle the tax bill.

 

All this despite the tax bill supposedly already having been settled at time of Roth conversion.

 

It's a double tax.

 

I did not know this -- does anyone have a source or other material to read on that?  I'm looking at Pub. 590 and there's no mention of Roth splits in divorce automatically being considered taxable withdrawals, which I imagine is a relatively common issue.  Can the ex-wife not simply rollover the Roth "distribution" to her own Roth and not trigger the tax?

[watsa_is_a_randian_hero]

So if I have a 10m Roth IRA with a cost basis of 300k, she would get 5m in a 50/50 split.  But that 5m is probably 150k cost basis, and 4.85m "gains".  So the government would tax that gain as a taxable withdrawal.... and at 50% tax rate in California, it's probably something like 2.425m in taxes to be paid... so then the courts would likely take more of my assets to help her settle the tax bill.

 

All this despite the tax bill supposedly already having been settled at time of Roth conversion.

 

It's a double tax.

 

I did not know this -- does anyone have a source or other material to read on that?  I'm looking at Pub. 590 and there's no mention of Roth splits in divorce automatically being considered taxable withdrawals, which I imagine is a relatively common issue.  Can the ex-wife not simply rollover the Roth "distribution" to her own Roth and not trigger the tax?

 

I could not find any support for this either.  Ericopoly, are you sure this information you gave for a divorce scenario is correct?  I believe both traditional and roth assets can be transferred tax free under a Transfers Incident To Divorce (I am not a tax professional though).

[ERICOPOLY]

So if I have a 10m Roth IRA with a cost basis of 300k, she would get 5m in a 50/50 split.  But that 5m is probably 150k cost basis, and 4.85m "gains".  So the government would tax that gain as a taxable withdrawal.... and at 50% tax rate in California, it's probably something like 2.425m in taxes to be paid... so then the courts would likely take more of my assets to help her settle the tax bill.

 

All this despite the tax bill supposedly already having been settled at time of Roth conversion.

 

It's a double tax.

 

I did not know this -- does anyone have a source or other material to read on that?  I'm looking at Pub. 590 and there's no mention of Roth splits in divorce automatically being considered taxable withdrawals, which I imagine is a relatively common issue.  Can the ex-wife not simply rollover the Roth "distribution" to her own Roth and not trigger the tax?

 

I could not find any support for this either.  Ericopoly, are you sure this information you gave for a divorce scenario is correct?  I believe both traditional and roth assets can be transferred tax free under a Transfers Incident To Divorce (I am not a tax professional though).

 

Thanks for correcting me.  I hope I didn't make any of you married folks unduly sweat over your infidelities.

[watsa_is_a_randian_hero]

Thanks for correcting me.  I hope I didn't make any of you married folks unduly sweat over your infidelities.

 

I subscribe to the motto of happy wife, happy life. 

 

I wanted to know this with a certainty given the potential situation to arise with clients.

[Philip Morris IV]

Yeah I am not married, but am usually quick to advocate Roths for clients when they're a good fit.

 

You just scared me for a second, Eric  :)  thinking I may have missed a material disadvantage to Roths.  Good news that it's not the case.

 

FWIW I'm sure that a divorce Roth gains tax can happen if the transfer/rollover isn't handled well or completed within the time window.