tax consequences of 401k distribution due to divorce?

Answer 1

If you are awarded part of your spouse's 401k in a divorce settlement, you have some options.

1. You can take the money and not leave it in a retirement account. In this case, the money is taxable. If it is distributed to you from a Qualified Domestic Relations Order (QDRO), no penalty will apply.

2. You can leave the money in the 401k but it is now labelled as your 401k. Your part of the money will grow, you will not be limited to your initial investment. This will not result in any tax or penalty until you withdraw money from your new 401k. Speak to the 401k trustee about the paperwork.

3. You could take the money and roll all or part of it to a traditional IRA. The amount you did not rollover will be subject to tax but no penalty if you have a QDRO.

4. You could take the money and roll all or part of it to a Roth IRA. You will pay income tax on the amount rolled over but no penalty.

Answer 2

Divorce 401k Distribution

Answer 3

If the EX rollover to his/her IRA account, there is no tax consequences for the husband and the wife.

Direct rollover assets are made payable to the qualified plan or IRA Custodian/Trustee, never to the individual. A direct rollover is reportable but not taxable.

Thereby, you need to make sure the 1099R should have G on box 7. A few years ago, one of my client had code 1 (normal distribution with no known exception). And the insurance company refuse to reissue the 1099R until three months later. We'd write letter to the IRS and the state. Otherwise, my client had to pay taxes.

Answer 4

There are no consequences to a Qdro distribution as long as the party that is receiving the distribution rolls it over into another retirement plan. If they take the distribution as cash, there will be taxes withheld and penalties. It will be 20% fFederal plus any state and local tax will be applicable.

Answer 5

You can set up the split so that whatever is in the account on the day the divorce is final is what her share will be when you take distribution at age 59 1/2. That way you avoid the penalties and you'll both have a more secure saving for the future.

She wouldn't be entitled to half, understand. She'd be entitled to half of what it's worth now. So, if you have $10,000 in there now she'd draw $5,000 when you took distribution even if your account grew to be millions.

Answer 6

100% taxable

There may be an exception to the 10% penalty though......

If it meets the definition below, you would not have to pay the 10% penalty:

"Qualified retirement plan distributions made to an alternate payee under a qualified domestic relations order"

Answer 7

If husband wrote a personal check to exwife for half of his 401K can he just pay half of the taxes due.

Answer 8

What happens if you leave the funds after divorce and QDRO in your own name in the plan. When and how can you draw funds and at what tax liability.

Answer 9

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