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What You Need to Know about Community Property and Your IRA Thumbnail

What You Need to Know about Community Property and Your IRA

What do you get when community property mixes with your IRA? Well, you will discover that the results can be confusing. Here are some facts every IRA owner should know.

What You Need to Know about Community Property and Your IRA

Community Property States

The community property system has been adopted by nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska has adopted an optional community property system. Are you off the hook when it comes to community property if you currently live in another state? Not so fast. Society is increasingly mobile. It is not uncommon during a lifetime to move to and from community property states.

How Community Property Works

Community property is everything a husband and wife own together. In general, this includes all money earned and property acquired during the marriage. How do your IRAs fit in? Assets held in an IRA will be community property to the extent that contributions were made to the account and earnings accrue during the marriage.

It’s important to keep in mind that community property rules can vary from state to state. For example, California community property law is not the same as Arizona community property law.

When are community property issues likely to come up with your IRA? Well, generally, there are two significant times where you might encounter these issues as an IRA owner. When it comes to determining who gets your IRA after a divorce or death, community property rules will come into play.


In community property states, a spouse may have a community property interest in the other spouse’s IRA. By doing a trustee-to trustee transfer, this interest can be moved from one spouse’s IRA to the other spouse’s IRA after a divorce without negative tax consequences. You will need a court order for this transfer to be done.

Naming IRA Beneficiaries

Since community property law can dictate who gets your IRA after death, it must be taken into account when you name a beneficiary on an IRA. In a community property state, state law may recognize your spouse as the beneficiary of some or all of your IRA. Therefore, you may need to get your spouse’s written consent to name someone else as the beneficiary of your IRA.

Some IRA custodians have beneficiary designation forms with language for spousal consent to name a non-spouse beneficiary. Others do not. Even if a beneficiary designation form does include spousal waiver language, some experts caution against relying on it. To be sure that all goes as planned, the safest approach is for you and your spouse to each have your own separate counsel and for an experienced attorney to draft the necessary documents.

Expert Advice Needed

Now you know that community property can raise some complicated issues where your IRA is concerned. It is best to be prepared. If you have questions about how community property rules affect your IRA, a good place to start is a consultation with a knowledge financial or tax advisor who knows both the IRA rules and the property transfer rules.

By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC

Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.

Copyright © 2024, Ed Slott and Company, LLC Reprinted from The Slott Report, 05/15/24, with permission. https://irahelp.com/slottreport/what-you-need-to-know-about-community-property-and-your-ira/, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment advisor. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.