New QDRO & Spouse’s Account
My client just received an account at her ex-spouse’s company under a QDRO. If she takes distributions from it, is she penalized the 10% for being under 59 1/2? If not, why? I understand the initial QDRO which created her account within the company plan, but why would she not be taxed for taking out money now?
Permalink Submitted by Tim Bogert on Mon, 2010-10-11 23:50
She would not be hit with the 10% penalty UNLESS she moved the money into an IRA and took a pre 591/2 distribution. If she just take the distribution, she would pay taxes but not the 10% penalty. This is unique to QDRO’.
Permalink Submitted by Tim McGinnis on Wed, 2010-10-13 16:14
So she’s fine as long as the money stays within the current plan? I believe I found on another site all she’ll need is to add form 5329 with distribution code 06 and she’ll avoid the penalty. Does that sound accurate?
Permalink Submitted by mk foss on Wed, 2010-10-13 17:32
The 06 code is for someone who receives a distribution from a QDRO that is coded on the 5329 as a “1” which would indicate that a penalty applies. In that case, you use the Form 5329 and code 06. If the plan does it correctly and indicates on the 1099R that no penalty applies, you don’t need Form 5329.