Divorce & QDRO

Submitted by Robert Wright on Fri, 2013-10-25 19:19

I just got divorced.
I have a QUADRO that gives me half of my ex-husband’s 401(k) plan.

I’m 49 years old.

My ex-husband and I were joint owners on our marital house. The marital house was deeded to him on August 2, 2013 as part of the divorce settlement.

Q: Is there a way I can take a withdrawal from the 401(k) and NOT pay the 10% penalty tax if I use the proceeds of the withdrawal as a down payment for a house?

I understand I will owe income tax on a withdrawal from the 401(k).

Q: What if I roll my share of the 401(k) into a traditional IRA? Is there a way I could take a withdrawal from the rollover IRA and NOT pay the 10% penalty tax if I use the proceeds of the withdrawal as a down payment for a house?

I understand I will owe income tax on a withdrawal from the IRA.

Q: Do I have to wait until August 2, 2015 to qualify as a first time home buyer?



Submitted by Alan - IRA critic on Fri, 2013-10-25 20:34

First you would have to check with the 401k plan to see if you can take a distribution now. If you can, then there will be no 10% penalty on any amount you withdraw. You would also have to check with the plan if you can roll it over to an IRA at this time, since that is also a plan distribution. If you did that and then took a first home distribution from the IRA after 8/2/15 the penalty waiver would be limited to 10,000 unless you already used up your lifetime first home 10,000 waiver previously.

Submitted by mk foss on Fri, 2013-10-25 22:44

I agree with Alan.

  1. There is no 10% penalty on QDRO withdrawals, it doesn’t matter what the withdrawn funds are used for.
  2. Most 401(k) plans don’t allow withdrawals pursuant to a QDRO until you reach the employee-spouses’ first possible retirement age; that’s why Alan recommended contacting them.
  3. If you roll some or all of the QDRO to an IRA then take a withdrawal for a home purchase, $10,000 is exempt from the 10% penalty if you’re a first time homebuyer.  You and Alan are correct in saying that it will take 2 years from when you last owned a home to qualify as a first time homebuyer.

 

Submitted by Robert Wright on Sat, 2013-10-26 02:03

So, when allowed by the plan, taking a withdrawal from a 401(k) before age 59 1/2 pursuant to a QDRO is penalty free? I realize asking “why” about specifics of the tax code may be pointless, but is this some special “dispensation” for divorcees? Any idea why divorcees get a special exemption from the 10% penalty for pre 59 1/2 withdrawals?

Submitted by Robert Wright on Sat, 2013-10-26 04:05

Is there no time limit to the QDRO exemption?Could the spouse with the QDRO take a withdrawal from the 401(k) plan 5 years after the divorce – when she’s 54 years old – and still be exempt from the 10% penalty tax?

Submitted by Alan - IRA critic on Sat, 2013-10-26 17:14

There is no time limit for the penalty exception. I imagine the QDRO penalty exception in meant to protect divorced spouses who may not have worked and will need the funds for living expenses prior to retirement age. Many people mess up and roll employer plans over to an IRA and lose the QDRO exception. Then the spouse is forced into a rigid 72t plan from the IRA to get the penalty waiver.

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