QDRO & 10% penalty exception vs. IRA
Having a debate with a colleague re: the QDRO exception to the 10% penalty.
Who is the party that leverages this penalty exception? Is it the participant ex-spouse (the employee who is the plan participant), or is it the non-participant ex-spouse (the one who’s receiving the distribution as alternate payee)? Or both?
To put it another way, if the non-participant ex-spouse receives a cash distribution directly from the plan, can (s)he utilize the QDRO exception to the 10% penalty if they were, say, under 59.5?
I always thought the receiving spouse (the non-participant) could leverage the exception, but my colleague disagrees. Who’s right?
Permalink Submitted by Alan - IRA critic on Wed, 2020-09-16 19:09
The QDRO penalty exception applies only to the alternate payee (receiving spouse) for distributions directly from the plan. The plan participant does not qualify, and the alternate payee also loses the exception if the plan balance is rolled to an IRA.