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Recognition of community property interests in an IRA for
Federal income tax purposes would conflict with the application
of section 408 in several ways. As an initial matter, an account
imbued with a community property characterization would have
difficulty meeting the IRA qualifications. Section 408(a)
defines an IRA as a trust created or organized “for the exclusive
benefit of an individual or his beneficiaries”. (Emphasis
added.) An account maintained jointly for a husband and wife
would be created for the benefit of two individuals and would not
meet this definition. See Rodoni v. Commissioner, 105 T.C. 29,
33 (1995) (“as its name suggests, the essence of an IRA is that
it is a retirement account created to provide retirement benefits
to ‘an individual’”).
Secondly, recognition of community property interests would
jeopardize the participant’s ability to roll over the IRA funds
into a new IRA. Section 408(d)(3)(A)(i) provides that
distributions out of an IRA “to the individual for whose benefit
the account * * * is maintained” are not taxable under section
408(d)(1) if the entire amount received is paid into an IRA “for
the benefit of such individual” within 60 days. (Emphasis
added.) The rollover of a community-owned IRA would doubly fail
because both the distribution and contribution would involve two
persons.
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Last modified: May 25, 2011