QDROs and IRAs
OK, Since an IRA is not subject to QDRO rules, you don’t have to use a QDRO to transfer IRA money tax-free in a divorce, (which you would have to if a qualified employer plan). For an IRA you could just use a DRO instead.
My question is, while you don’t have to use a QDRO for an IRA partition in a divorce, it is OK to use a QDRO in this situation anyway if you so desire?
Thanks in advance,
Lee
Permalink Submitted by Peter Lingane on Tue, 2011-10-18 23:55
The Code say that you need a “divorce or separation instrument” to transfer an IRA, not a domestic relations order.
71(b)(2). The term “divorce or separation instrument” means—
(A) a decree of divorce or separate maintenance or a written instrument incident to such a decree,
(B) a written separation agreement, or
(C) a decree (not described in subparagraph (A) ) requiring a spouse to make payments for the support or maintenance of the other spouse.
414(p) Qualified domestic relations order defined.
For purposes of this subsection and section 401(a)(13) —
(1) In general.
(A) Qualified domestic relations order. The term “qualified domestic relations order” means a domestic relations order—
(i) which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and
(ii) with respect to which the requirements of paragraphs (2) and (3) are met.
(B) Domestic relations order. The term “domestic relations order” means any judgment, decree, or order (including approval of a property settlement agreement) which—
(i) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
(ii) is made pursuant to a State domestic relations law (including a community property law).
(2) Order must clearly specify certain facts.
A domestic relations order meets the requirements of this paragraph only if such order clearly specifies—
(A) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
(B) the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
(C) the number of payments or period to which such order applies, and
(D) each plan to which such order applies.
A QDRO incident to a divorce would appear to be “a written instrument incident to a divorce” and therefore adequate to transfer an IRA.
It is apparently easy to blow the QRDO rules. I’d be interested in learning what the more common problems are.