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Monday, May 12, 2014

IRA and 401(k) rulings - the law is complicated!

There have been a few rulings recently involving IRA or 401(k) distributions that led taxpayers to court. That's a lot of time and expense. One taxpayer was a tax lawyer in a large law firm who would be viewed as a tax expert - with tax knowledge well beyond most (he lost in court). Another involved a wife (later to become ex-wife) taking funds from her husband's IRA without his knowledge. And another case involved an ex-wife using her ex-husband's 401(k) to obtain money he owed her. Without knowledge of the tax law or how to think in a tax-like manner, she did not realize she would owe tax on that distribution and should have instead told the husband to take the distribution and pay her from those funds.

Yes, the law is complicated. I don't think it can be fixed to help someone stealing funds from a spouse, but it should not be so complicated as to trip up a tax expert or someone who really thought she was just getting a debt repaid.  I think there are ways to simplify all of this. Perhaps only allowing Roth IRAs would be a way to go. What do you think.

Click here for my summary of and links to the three rulings at CPELink's blog site.

What do you think?

1 comment:

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