ex-wife receives employer stock as part of QDRO

Submitted by Catherine Turner on Mon, 2015-06-01 14:43

Is there any specific rules/guidelines about the registration of an IRA brokerage account that is receiving employer stock (privately owned company) as part of a QDRO agreement? Ex wife is under 59 1/2 and will be taking immediate redemption/withdrawals for personal expenses(she plans to take two withdrawals in 2015: one at age 50 and another after her 51st birthday.
The custodian of the brokerage account (NFS, LLC) has said that the onus is in the investor to have sufficient documentation to match up to her tax return and 1099-R for the tax year that she takes withdrawals. Furthermore, the custodian said that they do not make any notations on the 1090-R that the account is affiliated with a QDRO.



Submitted by Jose Morales on Mon, 2015-06-01 15:26

As far as the brokerage is concerned, they are opening an IRA for an individual and accepting a direct rollover of funds on their behalf.  That is comes from a QDRO distribution/Direct Rollover due to a divorce doesn’t change what the receiving custodian does on their end.  Once the funds are in the IRA they are treated as if they had always been her IRA funds.  Any distribution will be reported the same as it would for any other person under 59 1/2 taking a distribution.

Submitted by Alan - IRA critic on Mon, 2015-06-01 18:16

  1. Perhaps the individual (referred to as the alternate payee under a QDRO) should determine from the plan administrator what distribution options they will have directly from the plan. Such direct distributions from the plan are penalty free under a QDRO, but this penalty exception is eliminated once the funds are rolled over to an IRA. In cases where the alternate payee can receive flexible distributions, they should delay an IRA rollover until they reach 59.5. While they could consider a 72t plan with an IRA rollover, these plans are inflexible and the IRA owner would have to adhere to a strict budget for expenses until 59.5 or bust the 72t plan.
  2. The individual must also consider diversification needs with privately held employer stock, and should only retain a modest portion in employer shares. This trumps the concerns of various tax differences between the plan and an IRA.

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