QDRO to inherited/beneficiary IRA?
Per my QDRO I am receiving 5 years of my ex’s UC pension, payable now that I recently turned 50. Can these funds be rolled straight from the UC into a inherited/beneficiary IRA? With a QDRO I am can take the lump without the 10% penalty but if I take in full all at once my tax implication will be enormous. If I can roll into an inherited/beneficiary IRA then I can minimize my taxes by taking distributions over several years instead, but can a QDRO be rolled into this type of account?
Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2023-02-23 22:04
You were awarded the pension rights through the QDRO while ex was still living. Even if ex has since passed you did not inherit the pension payments, and you can only roll death benefits into an inherited IRA. Is the lump sum required or are you considering it as an option?
Permalink Submitted by Monica Adams on Thu, 2023-02-23 23:23
Hi, sorry if I wasn’t clear. The ex from which I’m set to receive 5 years of pension from is still alive. After turning 50 I received an award letter from the University staying I have 90 days to decide what I want to do: lump sum, rollover or monthly.. so I do not have to take a lump but I want to. Since it’s a QDRO, I won’t be charged the 10% penalty and was hoping that benefit would transfer over to an IRA if I went that route. I would just really love to avoid the super high tax bracket that taking the lump is going to trigger. If transferring to an IRA causes me to lose the exemption from the 10% tax penalty for early withdrawal, would transferring it into an already existing Inherited IRA an option, or is that not allowed? I ask because I do have one of those already set up from funds inherited by my recently deceased mother.
Permalink Submitted by Alan - IRA critic on Thu, 2023-02-23 23:22
You could do a direct rollover to an IRA, and then start a 72t plan using IRA distributions. This would avoid the penalty, but you would be limited to the exact distribution every year until age 59.5. These plans are very rigid and any error in calculation or execution would bust the plan and result in retroactive penalty and interest for all prior distributions under the plan. You would need to determine if the balance of the IRA would generate a large enough distribution to live on. And if you already have an IRA you could add some of the present IRA to the rollover IRA to increase the distribution, but the balance used for the plan would have to be in the IRA before you do the calculation or take the first distribution. You would need to determine if you want to initiate such a plan before deciding on how to take the QDRO settlement.