QDRO question

[DaveinTexas]

My client received a 401k distribution from her ex-husband. Tax was withheld on the proceeds and the 1099R was reported to her SSN.

Am I correct in assuming, under the QDRO, that the wife is treated as the participant in that the distribution is fully taxable to her but she is not subject to the 10% penalty?

My thinking is that she is not subject to the 10% penalty.

Your thoughts...

[abby]

spouse is allowed to take $$ and run

there is a provision that a spouse can take the money when the QDRO distribution from the 401(k) is received, and keep it without paying the penalty.

If she rolls it over into an IRA, though, then any future distribution would be taxable and subject to penalty.

It has to be structured properly, so I'd check the rules in any case, but if the 1099-R is in her soc sec number, then that is the first hurdle cleared. That's good.

I know this rule because last year I had a client whose lawyer insisted she could take an IRA distribution from her husband without penalty and in fact she could not - that rule does not apply to IRAs.

[DaveinTexas]

You are well versed in your tax code

I just spoke to Mrs. Freeman with the IRS and after 30 minutes on the phone and a few arguements from me, she concurred with your statement.

In fact, it was a 401k and it does not apply to IRAs.

I love it when I get something right.

Thanks for your help.