I am getting half of my exhusbands 401(k) via QDRO within the next 2 weeks. Most of that money that I receive I will give to my ex for a buy out of our house. I understand because the distribtuion is via a QDRO, that BOX 7 on the 1099R will be listed with a "2" exception, meaning I am not subject to the 10% early withdrawal penalty. I understand that I will have to pay the taxes though. What happens though if I have a few thousand dollars left over after I pay off my ex, that I want to roll over. Would I be able to roll the "xtra " money over & what about the taxes that were withheld on the entire distribtuion.
ALso, another thought. I am assuming that I only get out of the 10% penalty (exception code "2") if the payment is made in a lump sum to me. In other words, if I transferred my entire portion from ex's 401K to an IRA in my name, then just liquidated the amount that I owe my ex, I am assuming that the distribution code on the 1099-R would be premature distribution, & I would be responsible for the taxes & the 10% early withdrawal penalty, I do not believe once the funds are transferred to my name, that I would be allowed to then distribute to the ex & have it coded as a dsitribution via QDRO.
Please let me know your thoughts
Full Version: How do I split the distribution of 401K assets in 2
If within 60 days of the QDRO payment to you from the 401k you pay an amount up to the QDRO payment amount into an IRA in your name, you will postpone the taxation. The 20% income tax withholding on the entire QDRO payment will be a credit in your favor against your income tax bill for the year (and may result in or add to your receiving a refund for the year). So, yes, you can roll the 'xtra' money into an IRA, provided you do it within the 60 day time frame.
The only way you could avoid the 20% income tax withholding applying to the part you roll to an IRA is to have the 401k plan pay that part of your QDRO payment directly to the IRA custodian, and then withhold on the rest as is paid directly to you.
You are correct about losing the QDRO exemption from the 10% early distribution penalty if you place the QDRO payment into an IRA and then withdraw from the IRA. That is, the 10% penalty will apply to later withdrawals from the IRA (unless you are then over age 59 1/2 years) as well as the income taxation.
The only way you could avoid the 20% income tax withholding applying to the part you roll to an IRA is to have the 401k plan pay that part of your QDRO payment directly to the IRA custodian, and then withhold on the rest as is paid directly to you.
You are correct about losing the QDRO exemption from the 10% early distribution penalty if you place the QDRO payment into an IRA and then withdraw from the IRA. That is, the 10% penalty will apply to later withdrawals from the IRA (unless you are then over age 59 1/2 years) as well as the income taxation.
Or, presumably, patty's portion that she does not intend to use to pay the ex-spouse could be directly rolled to the IRA (and therefore not be subject to 20% withholding).
But, rather than take the $$ from ex's 401(k) and pay taxes, why can't you agree to have him keep his 401(k)--except for portion that represents the "excess" over your half of the house--and you take the house. That way, you save taxes (& can get a small direct rollover to your IRA) & he gets to keep the 401(k). Seems like a win-win unless I'm missing something.
But, rather than take the $$ from ex's 401(k) and pay taxes, why can't you agree to have him keep his 401(k)--except for portion that represents the "excess" over your half of the house--and you take the house. That way, you save taxes (& can get a small direct rollover to your IRA) & he gets to keep the 401(k). Seems like a win-win unless I'm missing something.
QUOTE (Sieve @ Oct 3 2008, 01:55 PM) 
Or, presumably, patty's portion that she does not intend to use to pay the ex-spouse could be directly rolled to the IRA (and therefore not be subject to 20% withholding).
But, rather than take the $$ from ex's 401(k) and pay taxes, why can't you agree to have him keep his 401(k)--except for portion that represents the "excess" over your half of the house--and you take the house. That way, you save taxes (& can get a small direct rollover to your IRA) & he gets to keep the 401(k). Seems like a win-win unless I'm missing something.
But, rather than take the $$ from ex's 401(k) and pay taxes, why can't you agree to have him keep his 401(k)--except for portion that represents the "excess" over your half of the house--and you take the house. That way, you save taxes (& can get a small direct rollover to your IRA) & he gets to keep the 401(k). Seems like a win-win unless I'm missing something.
I believe that the QDRO states something to the effect that I am the alternate payee and that the money has to bepaid out as a lump sum. There does not seem to be any provision for me to just give the portion to the ex, and me ttake the 'extra" so to speak. SO it appears that I will ahev to pay taxes on my distribution, then give it right back to the ex, tax free. You have to understand, this is how the ex wants it, becasue he is planning on using the money that I give him as a down payment on a house with the new girlfriend/wife.
Yes, the new girlfriend/wife is one of those cash flow issues necessitating the QDRO and then money to the EE.
QUOTE (pattycake @ Oct 3 2008, 01:06 PM)
I am getting half of my exhusbands 401(k) via QDRO within the next 2 weeks. Most of that money that I receive I will give to my ex for a buy out of our house. I understand because the distribtuion is via a QDRO, that BOX 7 on the 1099R will be listed with a "2" exception, meaning I am not subject to the 10% early withdrawal penalty. I understand that I will have to pay the taxes though. What happens though if I have a few thousand dollars left over after I pay off my ex, that I want to roll over. Would I be able to roll the "xtra " money over & what about the taxes that were withheld on the entire distribtuion.
ALso, another thought. I am assuming that I only get out of the 10% penalty (exception code "2") if the payment is made in a lump sum to me. In other words, if I transferred my entire portion from ex's 401K to an IRA in my name, then just liquidated the amount that I owe my ex, I am assuming that the distribution code on the 1099-R would be premature distribution, & I would be responsible for the taxes & the 10% early withdrawal penalty, I do not believe once the funds are transferred to my name, that I would be allowed to then distribute to the ex & have it coded as a dsitribution via QDRO.
Please let me know your thoughts
ALso, another thought. I am assuming that I only get out of the 10% penalty (exception code "2") if the payment is made in a lump sum to me. In other words, if I transferred my entire portion from ex's 401K to an IRA in my name, then just liquidated the amount that I owe my ex, I am assuming that the distribution code on the 1099-R would be premature distribution, & I would be responsible for the taxes & the 10% early withdrawal penalty, I do not believe once the funds are transferred to my name, that I would be allowed to then distribute to the ex & have it coded as a dsitribution via QDRO.
Please let me know your thoughts
Are you receiving cash or property undefr the QDRO? In a prior post I thought you said you were entitled to 1/2 of your ex's interest in the plan which was 70% invested in employer stock. If you receive employer stock under the QDRO you may be able to transfer it to your ex in way that would avoid any capital gains tax on the stock if it meets the requirements for a transfer of property incident to divorce under IRC 1041. You would only be responsible for paying ordinary income tax on a portion of the distribution. Any distribution you receive under a QDRO is exempt from the 10% penalty tax if it is not rolled over to an IRA. You need to consult a tax advisor.
If your QDRO was drafted properly you could have avoided all of these tax problems.
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