QDRO and 10% pre 59 1/2 penalty
If an ex-spouse is cash poor, 51 years old, recently divorced and awaiting a distribution from the ex-spouse’s 401k plan via a QDRO; is the spouse able to take a distribution from the account and not have to pay the 10% early withdrawal penalty because of the QDRO? I know if she rolls it into an IRA she can’t take the funds without being subject to the 10% penalty, unless if the distribution is due to an exception.
My understanding that if the kplan stays with the ex’s employer then distributions can be taken and they aren’t subject to the pre 59 1/2 early penalty.
Permalink Submitted by Alan - IRA critic on Tue, 2019-02-26 00:51
Yes, distributions directly from the 401k as a result of the QDRO are penalty free and should be coded 2 on the 1099R. It coded 1 by the plan, then a Form 5329 can be filed showing exception code 06 (QDRO) to eliminate the penalty. You are correct that this exception does not apply to IRA distributions.