QDRO, Deffered Comp plan rollover to IRA
We have a new client who is in the process of finalizing her divorce. She is recieving a large portion of her ex-spouses Deffered Comp plan using a QDRO.
Are their any (possible loaded question) possible pitfalls to watch out for while moving through this process? The client has been advised to move, rollover, the deffered comp plan to her traditional IRA.. Many thanks..
Permalink Submitted by Alan Spross on Thu, 2009-10-29 20:16
The main issue here is that a non qualified plan is not subject to the early withdrawal tax, so the QDRO penalty exception is not even needed. But once these funds are rolled over to an IRA (only possible with a government 457 plan), they lose the penalty free exception is the client is not yet 59.5. While a 72t plan can be set up using that IRA, these plans are highly restrictive and best used only as a last resort. This means that if the 457 plan offers her partial distribution options, she may be better off to elect those options than doing a rollover prior to 59.5. If the options are too restrictive, they might force her into an IRA rollover and 72t plan.
If the 457 plan is a non government plan, it cannot be rolled over to an IRA, leaving direct plan distributions as the only option.
If the ex is still employed by the 457 employer, it is possible that distributions are restricted since a QDRO cannot force a plan to allow distributions not allowed to the actual employee.