Divorced Spouse with QDRO 401k rolling to IRA, needs $
Hello. A divorced client of mine has a 401k that she received from her ex-spouse, still at his employer’s provider. She wants to roll it to an IRA with us. She wants to take some money out to pay lawyer’s fees, etc… She is going to college and has 3 kids. Would she be better off to take the distribution from the 401k before she rolls it over or roll it over first to an IRA and take it from the IRA? She does have some college expenses, even though she receives financial aid. Her expenses include books, supplies for dental assisting classes, and scrub uniforms.
Permalink Submitted by Alan - IRA critic on Thu, 2017-08-24 18:21
Direct distributions from the 401k are penalty free under the QDRO exception regardless of what they are used for. If an IRA rollover is completed and distributions taken from the IRA, there will still be a penalty waiver for proceeds used for qualified higher education expenses, and perhaps certain other types of expenses, but no penalty waiver for other IRA distributions until 59.5. Therefore, it is probably safer to leave the 401k alone until 59.5 as long as the plan allows her to take partial distributions when needed.