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what is a Quadro Order?

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nywary

Junior Member
If the withdrawals begin after age 59 1/2, then there is no 10% penalty, isn't that correct?

Just taxed as Ordinary Income.
 


helpmeIamprose

Junior Member
chech this out, while you are while you are writting my advisary faxes me that his client is unable to abide by the court order to pay me from the 401k due today. he claims her employer needs to have an quadro order first before they can allow the withdraw. now the advisary wishes to adjourn trial oct 1 for another attempt at economics mediation. but I just handed the monie over to an new attorney this morning. help me out here what do i do, I know I do not wish to go to trail because of the tapes ,( other thread CAN THIS BE USED AGAINST ME )
 

LdiJ

Senior Member
chech this out, while you are while you are writting my advisary faxes me that his client is unable to abide by the court order to pay me from the 401k due today. he claims her employer needs to have an quadro order first before they can allow the withdraw. now the advisary wishes to adjourn trial oct 1 for another attempt at economics mediation. but I just handed the monie over to an new attorney this morning. help me out here what do i do, I know I do not wish to go to trail because of the tapes ,( other thread CAN THIS BE USED AGAINST ME )
Why don't you just have your new attorney draw up a QDRO? Whats the big deal?
 

Bali Hai

Senior Member
Ok...someone has a 401k with company B for 100k.

The court orders that the spouse gets 50% of the 100k, however the company's plan will not accomodate the account being split into two different accounts, (which would be unusual) therefore 50% of the money has to be withdrawn from the account and given to the spouse by check.

I agree, this would be extremely unusal.

That creates a taxable event for the original holder of the 401k, but per the tax code the 10% early withdrawal penalty is waived. The person files form 5329 with their tax return and chooses exception number 6 on line 2.

Wouldn't this give the spouse receiving the penality free amount a windfall advantage in the case where $500k was that persons share for instance??

Second example

Same scenario however the company's plan allows for the original 401k to be split into two separate accounts. One for the original account holder and one for the spouse.

The spouse then decides to withdraw the money from the account and close it....or perhaps even the company plan requires her to do that.

That means that the 1099-R will be issued in HER name, rather than in the name of the original account holder, and she would be responsible for any taxes, but again, there will be no 10% early withdrawal penalty and form 5329 should be used. However, that only applies in the year of the divorce. If she leaves the money in the account or rolls it over into another account and then withdraws it several years later, there would be a penalty.

So the spouse that owns the account can withdraw their funds the same as the spouse who withdrew funds penality free within the same year as the divorce?

If not, why not??


In both scenarios they have to pay regular income tax on the withdrawal (which they would have to do even after they retired), but there is no penalty.

Bali,

If you had this happen, and you got a 1099-R, and you did not include form 5329 with your return (choosing exception number 6), then you can still amend your return to get the penalty money back, as long as it wasn't an earlier year than 2004.
I have no problem with either scenario as long as both spouses are treated equally and can withdraw from their accounts penality free during the year of the divorce.

Thank you for your answer.
 

LdiJ

Senior Member
I have no problem with either scenario as long as both spouses are treated equally and can withdraw from their accounts penality free during the year of the divorce.

Thank you for your answer.
That's not quite right....the penalty free withdrawal can only happen as part of the QDRO process....as part of the division of the asset. In the second example I gave above, the original holder of the 401k could not ALSO withdraw the other half without penalty. Its the half that is going out of the original account that bears no penalty.

That's simply the way that the tax code works. Congress decided that it was unfair to impose a penalty on money that was being divided in a divorce settlement. Congress recently improved the tax code in another way regarding retirement accounts. Now someone that inherits an IRA or 401k is no longer required to withdraw the money and pay tax on it. They can now roll it over into a retirement account of their own....as long as its a trustee to trustee rollover.
 

Bali Hai

Senior Member
That's not quite right....the penalty free withdrawal can only happen as part of the QDRO process....as part of the division of the asset. In the second example I gave above, the original holder of the 401k could not ALSO withdraw the other half without penalty. Its the half that is going out of the original account that bears no penalty.

That's simply the way that the tax code works. Congress decided that it was unfair to impose a penalty on money that was being divided in a divorce settlement.

What I'm hearing you say is, Congress decided it was unfair to impose a penality on money that was being divided IF there were NO OTHER ALTERNATIVE and a distribution was forced.

If there were a way for the spouse to keep the money within the company account in their own name or rollover to an IRA, then that is what they must do OR pay the penality.

Is this how it works??


Congress recently improved the tax code in another way regarding retirement accounts. Now someone that inherits an IRA or 401k is no longer required to withdraw the money and pay tax on it. They can now roll it over into a retirement account of their own....as long as its a trustee to trustee rollover.
You would want to make sure you created a separate IRA for this money if you are married wouldn't you?
 

LdiJ

Senior Member
You would want to make sure you created a separate IRA for this money if you are married wouldn't you?
If there were a way for the spouse to keep the money within the company account in their own name or rollover to an IRA, then that is what they must do OR pay the penality.
They must do that or pay the tax...in almost every case the tax is a greater burden than the penalty. Congress basically wanted to make certain that divisions of marital property did not result in tax penalties.

Here is another example unrelated to retirement funds. If you live in a home for 2 of the last 3 years you can exclude 250k from gain for tax purposes. (each spouse if owned jointly). However, if you are getting divorced, and you haven't even owned it for 2 years, you get a pro-rated exclusion. If you have been separated for 5 years, but one of you has been living in the home, you both get the full exclusion.

Yes, you would absolutely want to create a separate IRA so that the inherited funds were kept completely separate from marital funds.
 
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Bali Hai

Senior Member
They must do that or pay the tax...in almost every case the tax is a greater burden than the penalty.

10% penality of $500k is $50k. You are telling me that the government allows some people out of this penality and some not??

If I had a reason to take $500k out of my 401k, you are telling me that I would need to pay $50k in penalities, but someone else would not have to pay that penality even if there were alternatives to taking a distribution.

Do you think Congress intended for their decision to work this way??


Yes, you would absolutely want to create a separate IRA so that the inherited funds were kept completely separate from marital funds.
Thank you for your answers.
 

tuffbrk

Senior Member
Gotta pay Peter to get 1/2 off Paul! :p
Except in my case, I have to pay an auditor upfront, to be reimbursed 1/2 the cost, at the time of settlement in order to give the STBX half of my 401K thru a QDRO...gotta love it. I'm getting nothing but have to pay half the cost of ensuring he gets his full 50% and I didn't dissipate marital assets! Despite providing the statement from the date of filing to current without any funds being removed...

My attn'y is questioning the adversary's attn'y as to whether there is a real need for an audit but I don't think this guy attended all of his law classes....
 

LdiJ

Senior Member
10% penality of $500k is $50k. You are telling me that the government allows some people out of this penality and some not??

If I had a reason to take $500k out of my 401k, you are telling me that I would need to pay $50k in penalities, but someone else would not have to pay that penality even if there were alternatives to taking a distribution.

Do you think Congress intended for their decision to work this way??

Basically yes. Divorce issues are not the only times when people are let out of the penalty. There are a total of 12 different exceptions that allow a penalty to be waived for someone. One classic one would be if someone decided to start withdrawing money at age 40 (or whatever age), rather than 59 1/2, they could do so without penalty as long as the distribution was periodic, and of an amount based on an actuarial table for their age.

So think about that? Lets say that you had a large inheritance that you knew was coming, so you weren't really going to need the 401k that you were building up....but you could really use more money now. As long as you took the money periodically, based on an actuarial table, you could do so without penalty.

Whereas someone else with a financial crisis (one that didn't qualify for an exception) who needed to take some money out, would have to pay the penalty.
 

Bali Hai

Senior Member
10% penality of $500k is $50k. You are telling me that the government allows some people out of this penality and some not??

If I had a reason to take $500k out of my 401k, you are telling me that I would need to pay $50k in penalities, but someone else would not have to pay that penality even if there were alternatives to taking a distribution.

Do you think Congress intended for their decision to work this way??

Basically yes.

I don't like a qualifier to your word yes. It is YES or NO!

Divorce issues are not the only times when people are let out of the penalty.

But we are TALKING about divorce!!

There are a total of 12 different exceptions that allow a penalty to be waived for someone. One classic one would be if someone decided to start withdrawing money at age 40 (or whatever age), rather than 59 1/2, they could do so without penalty as long as the distribution was periodic, and of an amount based on an actuarial table for their age.

I think it appropriate that we keep the conversation contained to DIVORCES!!

So think about that? Lets say that you had a large inheritance that you knew was coming, so you weren't really going to need the 401k that you were building up....but you could really use more money now. As long as you took the money periodically, based on an actuarial table, you could do so without penalty.

Ok.

Whereas someone else with a financial crisis (one that didn't qualify for an exception) who needed to take some money out, would have to pay the penalty.
Let's stick to the subject, 401k's and divorce!

Now answer this as I have asked you several times before, WHY wouldn't a person be required to pay the penalty on a 401k distribution and the original account holder would as a result of a QDRO? I see that money sitting there with restrictions for years and you are saying the restrictions are lifted for ONE person in a divorce action.

I appreciate your indulgance.
 

helpmeIamprose

Junior Member
i am getting the money from my wifes account and im being told by her employer that the qdro order is to protect the orginal account holder from penalty. and I would be responsible for the penalty if I decide to withdraw, is this correct? your saying that I can take an exception to this rule. so if I get this right I have to spend money with my new attorney to write a qdro order to get the money that the judge ordered her to pay me from the 401k to get an attorney and then I am going to pay a penalty. thats just great , why didnt the judge order the qdro order when she ordered the payment?
 
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nywary

Junior Member
i am getting the money from my wifes account and im being told by her employer that the qdro order is to protect the orginal account holder from penalty. and I would be responsible for the penalty if I decide to withdraw, is this correct? your saying that I can take an exception to this rule. so if I get this right I have to spend money with my new attorney to write a qdro order to get the money that the judge ordered her to pay me from the 401k to get an attorney and then I am going to pay a penalty. thats just great , why didnt the judge order the qdro order when she ordered the payment?

SOME companies - not all, probably not most - have a certain Form of QDRO Order that they require. If that is the case, the Benefits Dept can send you their form to use. It can't hurt to ask if they have one. Might save you the attorney fees.
 

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