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Well, we're at the QDRO portion of the divorce. My ex is still dragging his feet, refusing to pay his portion to the attorney who will be doing the QDRO, as well as refusing to supply the necessary statements & account info. Gee, he did the same thing during the divorce & financial discovery! But I digress...

SO, what I want to know is how QDRO income/disbursement, or whatever the word is, is taxed. Some monies will be coming out of a 401(k) and/or IRA, other monies will not. Yes, yes, I know everyone's situation is different. What I'm looking for here is info how this happens. How does the money get disbursed? What are various tax scenarios I need to be aware of? It's no secret that I'm in desperate financial straights due to my ex finding a way to not have to pay me spousal or child support. What if I need to spend some of the QDRO money to survive?

I'd just like any stories and experience (and internet links) about your experiences with QDRO disbursement.

Nature_Girl, Funds via a QDRO are normally deposited into a like account in the other's name. For example: when WH1 and I divorced, he got half of my 401(k), which was worth $200,000. They took $100,000 from my account, and created an account for him with the proceeds. If he withdrew any of that money prior to reaching retrement age, regular 401(k)rules apply: the tax rate plus penalties for early withdrawl was more than 50%.

I know IRAs work differently depending on what type of IRA it is, but I don;t have experience there so I won't speculate.

If you need money now, can you negotiate more cash/less 401(k) money?

401k, IRA QDRO transfers can be completed tax-free by insuring that you do a 'rollover' (from the exempt account to a new exempt account that you set up). Any mutual fund or broker dealer will tell you how to do this. It helps if (at least initially) both the existing and new account are with the same financial institution.

For other investments - stocks, bonds, mutual funds - the division can be kept from full income taxation as the funds are being divided via court order. So the transfers are division of existing securities and not to be taken as income. If you take income, it is (of course) subject to income tax.

Defined benefit pensions are very different. Normally you get no immediate payouts unless you are already retired.

Cash values of life insurance policies are taxable as income if distributed and the insurance policy canceled.

The funds affected by the QDRO in my divorce were all 401K and I had to complete a document authorizing how I wanted the funds disbursed. I chose to open a new IRA at my brokerage (different from the one the 401K was in - I didn't want my ex to have any possible access since he had forged my signature on several financial documents). No tax consequences.

Here is an article from Fidelity that might be helpful, down at the bottom there is some info about taxes and QDRO - pasted here (mods - hope it's okay to post link):

https://www.fidelity.com/viewpoints/personal-finance/women-and-divorce

4. Don’t immediately roll over your ex’s retirement account into an IRA. If your divorce settlement allocates assets under a qualified domestic relations order (QDRO), you can make a one-time withdrawal from your ex’s 401(k) or 403(b) without paying the normal 10% tax, even if you’re under age 59½. If you think you’ll need money for unavoidable divorce expenses, you may want to make the withdrawal rather than doing a rollover. Otherwise, if you roll the money into an IRA and then need to tap it for divorce costs, you’ll be subject to the standard 10% early withdrawal penalty.

Just want to say that neverbeokay's post is SPOT ON!!!

People always think there's a 10% penalty for taking retirement monies that are split in a QDRO. THERE ISN'T!

I rolled over my 401k into a new plan. Had I wanted to take it in cash, they would have only removed normal tax off the top. No penalty. So if your 401k portion is, say 50k, you could take it out, keep 10k, and return the rest to a new 401k. Or do whatever the heck you want to with it.

I DID cash out a small pension. It was about 17k, I think, and I got about 13k after taxes. NO PENALTY. And, because the tax rate is standard (not specific to your income bracket), I was actually REFUNDED another grand when I did my taxes this year.

If you choose not to roll the entire sum over, the plan administrator will have the taxes removed. You don't have to do a thing.

Now I'm wishing I'd kept a bit of the 401k to use as an emergency fund. But since I rolled the entire amount over to a new 401k, I can't touch it until retirement....unless I pay that damn 10% penalty.

Here's hoping the process can be moved along quicker for you NG, so you can get your hands on some cash! But one way or another, you WILL get it!

[This message edited by Grace and Flowers at 5:33 PM, March 31st (Monday)]