401k distribution/QDRO
My client has a QDRO from her recent divorce and is entitled to 50% of her ex-husband’s 401k. She completed the paperwork to convert to her name and it is still held by her ex-husband’s employer’s custodian. She is under 59.5 and needs to take a distribution to pay some bills. Is there some kind of exemption available to her such that she could avoid the 10% penalty?
Permalink Submitted by Alan - IRA critic on Wed, 2017-08-23 21:35
Yes, a direct distribution to her (the alternate payee) is exempt from the 10% early distribution penalty. The 1099R issued may or may not indicate Code 2, but if not the client can use Form 5329 and enter exception code 06 to report the penalty exception. I assume the plan provisions allow for her to receive a distribution in the first place if ex is still employed…..