QRDO question - what is the penalty for withdrawing?

[mariebell]

I am in Texas and my ex and I just completed our divorce agreement draft via mediation. In the agreement, I am awarded 62.5K from his rollover 401K account via a QRDO. At the same time, I am changing jobs, and so will need to repay a $20K loan against my employer's 401K (the loan was to pay off mutual debt and I agreed to keep the debt in our divorce agreement). What penalty will there be for withdrawing the $$ from the 62.5K awarded to me? Is that even an option?

 

[LdiJ]

I am in Texas and my ex and I just completed our divorce agreement draft via mediation. In the agreement, I am awarded 62.5K from his rollover 401K account via a QRDO. At the same time, I am changing jobs, and so will need to repay a $20K loan against my employer's 401K (the loan was to pay off mutual debt and I agreed to keep the debt in our divorce agreement). What penalty will there be for withdrawing the $$ from the 62.5K awarded to me? Is that even an option?

10% plus whatever your marginal tax rate is.

However, you are going to be stuck with that no matter what. You are either going to pay it on the 20k you borrowed from your 401k plan or you are going to pay it on the 20k you withdraw from your share of his rollever 401k. So, you are doing to pay paying penalty and tax on 20k either way.

 

[Bali Hai]

10% plus whatever your marginal tax rate is.

However, you are going to be stuck with that no matter what. You are either going to pay it on the 20k you borrowed from your 401k plan or you are going to pay it on the 20k you withdraw from your share of his rollever 401k. So, you are doing to pay paying penalty and tax on 20k either way.

I didn't see where OP stated her age.

 

[LdiJ]

I didn't see where OP stated her age.

Valid point...OP if you are over 55 there may be an exception to the penalty and if you are over 59 1/2 there is no penalty at all. You would just pay regular tax on the 20k.

 

[Bali Hai]

Valid point...OP if you are over 55 there may be an exception to the penalty and if you are over 59 1/2 there is no penalty at all. You would just pay regular tax on the 20k.

OP should also be aware that some plans offer penalty free hardship distributions for people of any age. OP should discuss this option with the plan administrator to see if she may qualify.

You may qualify to take a penalty-free withdrawal if you meet one of the following exceptions:

•You become totally disabled.
•You are in debt for medical expenses that exceed 7.5% of your adjusted gross income.
•You are required by court order to give the money to your divorced spouse, a child, or a dependent.
•You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
•You are separated from service and you have set up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. (Once you begin taking this kind of distribution you are required to continue for five years or until you reach age 59½, whichever is longer.)