2 Comments

  1. 1

    Roxane Stancil

    I am an individual not an attorney. I am concerned because my lawyer very wrongly is adamant that I can not keep a portion of the QDRO funds without paying a penalty. I will prepare my own tax return (I am an accountant) so that part is not at issue. However, I am concerned that if he is so negligent in understanding tax laws, the QDRO may not be prepared right. Do I need to worry about paying a penalty because of his negligence?

    Reply
    1. 1.1

      Tim Voit

      In response to your inquiry you should review, or have your attorney review, I.R.C. Section 72(t)(2)(c) which exempts distributions from the 10% early withdrawal tax penalty from qualified plans, pursuant to a divorce and pursuant to a QDRO. The exemption does not extend to IRAs, however, unless it is for a first-time home purchase wit an exemption amount up to $10,000. There are also other approaches to taking early distributions without incurring the 10% tax penalty, e.g. substantial and equal payments, age 55 rule, etc., but to answer your question, the 10% is waived if taken directly from a qualified plan pursuant to a QDRO.

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