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  1. #1
    Join Date
    Mar 2020
    Posts
    1

    Default Taxes on IRA Ordered Child Support

    Ex spouse was in arrears with child support ~$66k. The court ordered ex-spouse to transfer free and clear a ~$60k non-roth IRA of to me as child support (I am the custodial parent). I withdrew ~50% of the IRA in a lump sum in December 2019. The financial institution automatically sent 20% to the IRS as taxes. I am 62, so was not penalized for early withdrawal. Have one minor child still living at home.

    Question: since child support is non-taxable, do I have any chance to have the collected taxes on the IRA/Child Support withdrawal refunded? That money would help finance child’s college after high school.
    Thank you for your input.

  2. #2
    Join Date
    Mar 2013
    Posts
    17,940

    Default Re: Taxes on IRA Ordered Child Support

    do I have any chance to have the collected taxes on the IRA/Child Support withdrawal refunded?
    No. You pay taxes on the distribution just as if you had taken the money out to buy a car.

    Having the IRA transferred to you was a bad idea. You should have had your ex withdraw the $60K from the original account and give you the money. Then your ex would have paid the taxes.

    Here's another thing. You got a $60,000 IRA toward the arrears. You took a distribution of $30,000. If taxes on the distribution come to, say, $6,000 then your ex has only paid you $54,000 toward the $66,000 arrears. And if you take the other half in 2020 and it costs you another $6,000 in taxes then your ex has only paid you $48,000 toward the $66,000 arrears and your ex would still owe you $18,000. Imagine your ex's surprise upon learning that.


  3. #3
    Join Date
    Oct 2014
    Posts
    7,956

    Default Re: Taxes on IRA Ordered Child Support

    Quote Quoting adjusterjack
    View Post
    No. You pay taxes on the distribution just as if you had taken the money out to buy a car.
    Correct. The distribution is taxable income regardless of what you then use the money for.

    Quote Quoting adjusterjack
    View Post
    Having the IRA transferred to you was a bad idea. You should have had your ex withdraw the $60K from the original account and give you the money. Then your ex would have paid the taxes.
    There may not have been a choice — the court may have ordered it done the way it was. But if the tax issues were not considered prior to making this arrangement they should have been.

    Quote Quoting adjusterjack
    View Post
    Here's another thing. You got a $60,000 IRA toward the arrears. You took a distribution of $30,000. If taxes on the distribution come to, say, $6,000 then your ex has only paid you $54,000 toward the $66,000 arrears.
    No. He's paid and gotten $60k credit to the arrears. Phrasing it as you did I think is confusing. But it is true that because she pays the tax in the end she has less money to spend on other things than she would if he satisfied the arrears with cash.

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