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The husband's Roth can be cashed out (has had it over 5 years and is over 59 1/2).

The wife has been granted the Roth in the property settlement. The wife needs the cash.

If the husband cashes out the Roth account and gives the wife the money, will the wife incur any taxes or penalties on it?

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No, given the circumstances, no tax due.

The fact that the wife wants cash makes my next comment moot, but for others - An IRA in either flavor belongs to the individual and cannot be gifted as such. But. Under a QDRO, a Qualified domestic relations order, the account may be transferred as an IRA. For a spouse who doesn't need immediate access and would prefer the gross amount and continued growth, this might be preferable to getting the cash. For a pretax IRA, cashing out the whole account can be costly compared to the partial distributions each year.

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  • The balance wasn't discussed, but are there rules about gift taxes to be considered? They are no longer married, so would a very large sum be taxed (or is that up the particulars of the ruling)? Was the wife rewarded the account or the cash in the account? Would that make a difference?
    – MrChrister
    Feb 4, 2014 at 18:48
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    @MrChrister QDRO is not a gift.
    – littleadv
    Feb 4, 2014 at 19:47
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    @littleadv - right. MrC, please read the link, QDRO is a court ordered split of assets. It's one of the few times an IRA can change ownership with no dying involved.
    – JTP - Apologise to Monica ♦
    Feb 4, 2014 at 20:41
  • @littleadv et al - oop sorry, I didn't notice the link. All my remaining questions are answered by the sentence "Among such requirements is that the method of distribution must be selected from among the options available to the Participant, according to the terms of the Plan."
    – MrChrister
    Feb 4, 2014 at 21:07

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