Qdro

[Super Mom]

I am really worried about my QDRO, my attorney has been prepaid. (I will never make that mistake again!) He is adamant that I will have to pay a penalty for funds I keep in the QDRO. I know that is not right and I will file my own taxes, no problem.

What really scares me, is there something he can do wrong in preparing the QDRO to make me have to pay the penalty? I have been assured that this will be prepared according to IRS standards, but I am afraid.

[TaxGuyBill]

is there something he can do wrong in preparing the QDRO to make me have to pay the penalty?

My impression is no, because it doesn't really seem to complicated, and both the Judge and retirement plan administrator need to 'sign off' on it too. If you have concerns, you may want to ask the Judge and/or retirement plan administrator. Or even a brief consultation with another lawyer (there may even be some fairly low-cost online forums that you can ask questions to lawyers).

He is adamant that I will have to pay a penalty for funds I keep in the QDRO.

I'm confused. This says he says the penalty applies for funds IN the QDRO. Your prior post indicates he said the panalty applies to the money that you keep. So does he claim it is ALL subject to a penalty?

Then to check that you know the rules, what EXACTLY is happening to the money? Is it staying in the same account? Different account at the same place? Being rolled into another account elsewhere? Something else?

[New York Enrolled Agent]

There is no 10% addition to tax for "payments to alternate payees pursuant to Qualified Domestic Relations Orders" IRC §72(t)(2)(C).

What sometimes creates a problem is that the "alternate payee" takes the lump sum and rolls into their own IRA. Now the IRA rules apply and you might have a 10% addition to tax. Did you have any plans to do that?

[Dude]

There is no 10% addition to tax for "payments to alternate payees pursuant to Qualified Domestic Relations Orders" IRC §72(t)(2)(C).

What sometimes creates a problem is that the "alternate payee" takes the lump sum and rolls into their own IRA. Now the IRA rules apply and you might have a 10% addition to tax. Did you have any plans to do that?

I dont run into these very much but I thought if the alternate payee former spouse made a rollover to an IRA they were treated as if they were the employee who owned the plan? What complications have you run into? https://www.irs.gov/publications/p57...link1000226929

[Rapid Robert]

I read this "Now the IRA rules apply and you might have a 10% addition to tax. " as now that the money is in an IRA, it might be subject to early withdrawal penalty, if subsequently withdrawn.

[TaxGuyBill]

There is no 10% addition to tax for "payments to alternate payees pursuant to Qualified Domestic Relations Orders" IRC §72(t)(2)(C).

The one thing that I'm unsure of is what EXACTLY does "pursuant to Qualified Domestic Relations Order" mean?

I don't know how things work, so I could be COMPLETELY wrong here, but my one interpretation is that the "order" is to divide the retirement plan. If the spouse's portion is then placed into a separate account (even at the same location), are later distributions 'pursuant to the order'? If the 'order' is just to divide the account, the "order" may no longer be applicable. So later distributions may not be 'pursuant to the order', and therefore could be subject to a penalty.

Again, that is just one way of reading it, and I have NO IDEA if that is actually correct or not. I have not found any solid evidence one way or the other.

[New York Enrolled Agent]

RR has it correct - if the alternate payee rolls over to an IRA then IRA rules control subsequent didtributions.

TGB - see if IRC §402(e)(1) is of help.[emphasis added]

(e) Other rules applicable to exempt trusts

(1) Alternate payees

(A) Alternate payee treated as distributee. For purposes of subsection (a) and section 72, an alternate payee who is the spouse or former spouse of the participant shall be treated as the distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order (as defined in section 414(p)).

There's an interesting case on QDRO distributions Fernandez 138 TC No. 20 - might also be of help with the issue.

[Dude]

Thanks RR the word SUBSEQUENTLY properly puts the issue into context and keeps us out of an implied QDRO rabbit hole