Pension Distributions Under a Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (QDRO) is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child or other dependent.
DISTRIBUTIONS: When it involves the allocation of the benefits of a qualified pension plan, the order has to contain certain specific information like the amount of the participant's benefits to be paid to each alternate payee.
ROLLOVERS: An alternate payee spouse under a "qualified domestic relations order" can qualify to rollover retirement plan distributions. The maximum amount, which may be transferred to another plan in a rollover, can't exceed the fair market value of all the cash or property received LESS any after-tax employee contributions, which are part of the distribution. Generally, a rollover must be completed within 60 days after a distribution is received in order to ensure non-taxability.
The advantages of rollovers are that:
The disadvantages of rollovers are that:
EARLY WITHDRAWAL PENALTY: Generally, distributions from qualified retirement plans before the age of 59 ˝ are subject to the early withdrawal penalty. However, distributions from a qualified retirement plan to an alternate payee under a qualified domestic relations order is exempt from that penalty. This exception does not apply to IRA accounts.
CAUTION: If the recipient rolls the distribution into his or her own IRA account, then any subsequent distribution will be subject to the early withdrawal penalty.