QDRO transfer to older spouse
L1: QDRO transfer to older spouseClient, now age 57, has had a 72(t) plan in place for several years. Now in process of a divorce and spouse, age 61, will be receiving part of his IRA as a QDRO transfer. Does spouse have any restrictions on withdrawals, such as being subject to a early withdrawal penalty? And does client recalculate his annual distribution requirement based on the new reduced value?2009-05-27 16:19, By: Jack, IP: [22.214.171.124]
L2: QDRO transfer to older spouseHello Jack:
I really think there are three questions:
1. Does QDRO order, unto itself, constitute a modification of the SEPP plan?
2. Does current IRA owner / SEPP plan recalculate next year’s distribution becuase of the execution of the QDRO?
3. Does receiving spouse of IRA monies have any duties?
The answers are:
1. I don’t think so but I am not 100% sure.
2. I don’t think so but I am not 100% sure.
In short, we have always been in a bit of a turmoil as to how SEPP plans interact with forced / voluntary execution of other permissible distribution reasons. This has gotten more complex just recently based on a PLR issued earlier this month that seems to indicate that some interaction is permitted but only for certain reasons and, of course, divorce wasn’t one of them.
In general, diviorce attorneys and judges are nto well versed in this arena and need to be educated whenever possible. The best course of action, if still available, is to cause the marital estate to be equitably divided without disturbing the SEPP IRA and without disturbing the annual distributions. If this is no longer possible, I would suggest obtaining professional help immediately to explore other alternaative.
2009-05-27 16:52, By: TheBadger, IP: [126.96.36.199]
L3: QDRO transfer to older spouseIn general, QDRO distributions from retirement plans I believe are not subject to the 10% penalty, even if the recipient is under 59 1/2. Based upon the recent court ruling, I think that this would extend to SEPP IRAs as well.2009-05-28 16:51, By: dlzallestaxes, IP: [188.8.131.52]
L4: QDRO transfer to older spouseThe QDRO penalty exception only applies to distributions from employer plans, not from IRA accounts. Actually, the expense of a QDRO is not even needed for an IRA partition, as an IRA can be split by a “transfer incident to divorce” per Pub 590, p 29.
An interesting by product of the Benz ruling is the possibility of clearer rulings for SEPP plans affected by divorce proceedings. Right now, the rulings are so diverse that they cannot be depended on and require expensive letter ruling requests. However, relief in this area could be further off since there is no IRA exception existing at present, as there is for higher education costs.
2009-05-28 20:42, By: Alan S., IP: [184.108.40.206]