QDRO

Submitted by [email protected] on Wed, 2008-07-02 15:55

I have a 62 year old client going through divorce and there is a QDRO in place. The proposal from attorney says” Mr. Doe will roll over by QDRO $X from his retirment account with Y custodian.” The problem is that the account is an IRA and according to Ed this can not be done with a QDRO but only by a divorce aggreement and T-t-T transfer. I brought this up to client and ask her to run it by attorney and he responded with “unless there is something exotic about these accounts that I am not aware of, we CAN do a QDRO for you that will not result in any tax liabilities.” What course of action should i take now. Is there anyone with experience in this type situation? Any PLR’s or IRS pubs that specially lay out what needs to take place?
I guess i don’t really understand difference between QDRO and divorce aggreement.
Thanks for any feedback



Submitted by Al Fry on Wed, 2008-07-02 17:55

Basically a QDRO and a divorce decree can both accomplish the same thing: divide the retirement plan between the two parties. A QDRO is used for Qualified Plans, the divorce decree can make the split for IRAs. One difference is the QDRO allows the other spouse to take the money without penalty, although taxable. With the IRA, the pre-59 1/2 penalty still applies.



Submitted by [email protected] on Wed, 2008-07-02 18:19

So then my client would need a divorce decree of some sort other than a QDRO, correct?

She is 62 so not concerned about 10% penalty

Thanks for your help



Submitted by Al Fry on Wed, 2008-07-02 19:55

If she is divorced, she has a decree or property settlement document of some sort outlining what she gets. The IRA may or may not be split in the document.



Submitted by Denise Appleby on Thu, 2008-07-03 18:42

The term QDRO is often mistakenly used for IRAs, and only serves to cause delays and frustration for the parties involved. As Al said,
—-You use QDRO for qualified plans and 403(b)s
—-Your use Divorce Decree or Legal Separation agreement for IRAs.

Under [I.R.C. §414(p)(9)], QDRO rules do not apply to IRAs

QDROs are subject to a strict set of rules that do not apply to IRAs, and causes a waste of time if used for IRAs under those rules. That being said, custodians will usually accept a document labeled as a QDRO as long as it identifies the IRA, the recipient, explains how the split should occur, and they are not required to act as ‘administrator’ under the QDRO rules. You may have to push to get them to use it though.

Consider too that some documents labeled as QDROs are not really QDROs, but are mistakenly labeled as QDRO by the court or attorney handling the case . If that is the case, it should be an easy sell to the custodian.

The custodian should not be asked to provide the information/service that is usually provided by a plan-administrator for a QDRO.

…hope this helps.

Denise



Submitted by [email protected] on Thu, 2008-07-03 18:48

Alfry and Denise,

Thanks you guys very much for your help. it is exactly what i needed to know.

P.S. Denise, i enjoy your website very much as well. thanks for all you do.



Submitted by Denise Appleby on Thu, 2008-07-03 19:19

You are very welcome Nick. And thanks for the feedback on the website.

Denise



Submitted by Al Fry on Thu, 2008-07-03 19:26

Got a new term to add, Denise: Wealth Decumulation = Using assets for retirement.



Submitted by Alan Spross on Thu, 2008-07-03 19:55

Al,
As opposed to “wealth evaporation” – the process whereby asset values shrink due to market conditions before they can be decumulated by account owners or court ordered QDROs…….. 🙂



Submitted by Denise Appleby on Thu, 2008-07-03 20:26

Thanks gentlemen.
I like and will add both.



Submitted by Denise Appleby on Fri, 2008-07-11 22:47

Wealth decumulation added.
Any feedback welcome

http://www.retirementdictionary.com/retirement-wealth-decumulation.htm



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