QDRO- Pre 59.5 withdrawals
Hi there, I have a client who just had a QDRO put in place. She is receiving 50% of the husband’s 401k, subject to earning/loss, and an additional fixed dollar $100k from his 50%.
The intent is that we are going to rollover the 50% to an IRA for her own retirement planning, and the $100k fixed dollar amount which was in lieu of alimony was going to be used $20k a year to supplement her income for 5 years.
Being that she is pre-59.5 under a QDRO withdrawals would not be subject to the 10% penalty, just income tax.
My question is, logistically do we need to:
- Rollover 50% and take $100k lump sum distribution
- Rollover 50% and leave $100k that we can distribute over time to spread the tax bill
- Rollover 100% and we can take IRA distributions as needed as she has a QDRO in place
How do we logistically need to take the distributions to avoid the 10% penalty? I have never actually taken a taxable distribution as part of a QDRO, only ever split the assets and kept them in the qualified wrapper.
Permalink Submitted by Alan - IRA critic on Wed, 2024-07-10 19:16
Amounts rolled to an IRA will lose the QDRO penalty waiver pre age 59.5, therefore any amounts projected to be needed by the receiving spouse should be left in the 401k until reaching 59.5, and that amount depends on her age now, so if she is 54.5 now and will need 20 per year, then 100k should be left in the 401k. If 100k may not be enough, then more than that should be left in the 401k.
Further, the 401k is not necessarily required to offer distributions to the client if such distributions would not be allowed to the ex before a certain date and this info can only come from the plan.
Unless any restrictions of the 401k cannot be tolerated, I would generally avoid rolling over the entire balance to an IRA and starting a 72t plan to exempt IRA distributions from being subject to the penalty.