What Are The Tax Consequences Involved In A Distribution From A 401(k) Plan Via A QDRO Due To A Divorce?

Q. Debra T. of Texas asks: "I am supposed to receive a portion of my ex-husband's 401(k) Plan and need to access these funds as soon as possible. What are the tax consequences involved in a distribution from a 401(k) Plan via a QDRO due to a divorce?"

A. Evan L., from the QDRO Department of Pension Evaluators & QDROS Of Troyan, Inc Associates Group answers: "Payments to a former spouse (alternate payee) pursuant to a QDRO are considered a taxable event to the recipient, not to the participant. Thus the Alternate Payee shall bear all tax liability on the Assigned Benefit distributed to the Alternate Payee, and said distributed Assigned Benefit shall be allocated a portion of the Participant's after-tax cost basis and/or company stock cost basis, if any, in accordance with Internal Revenue Code Section 72(m)(10). If a lump sum is paid via the QDRO, it is not subject to the premature distribution 10% excise tax penalty, regardless of the age of the alternate payee. This is true whether or not the lump sum is rolled over into an IRA. While the federal income tax rates are set for each income bracket, state income tax rates may not necessarily align with federal figures."

Evan Edelstein

QDRO Writer