Divorce 401K
I have a client who is getting divorced. The settlement is not final but she does need to make a distribution from her 401(k) to her ex. Are there any pitfalls to rolling her 401(k) into an IRA before the QDRO distribution to her ex is made?
Permalink Submitted by Alan - IRA critic on Tue, 2016-08-09 19:48
The QDRO only applies to the 401k. Doing an IRA rollover will likely cause a major problem when the plan receives the QDRO after the balance has been rolled out. A different court order would then have to be drafted by ex’s attorney requesting a transfer of part of her IRA as a transfer incident to divorce. Recommend that she first check through her attorney with ex’s attorney regarding this question. Note that ex could tap the 401k without penalty while if ex is under 59.5 he could not take any distributions from an IRA account received by transfer. Also, note that any distribution she takes from her 401k to pay to ex would be a disaster because SHE would be taxed on it and penalized if under 59.5. Under a QDRO, ex would take his own distributions (if eligible under the plan) and ex would report the taxable income.