QDRO - participant quits - ex spouse still leave $ in plan?

[KTB]

When doing a QDRO and the ex-spouse still has the balance in the plan, when the participant quits, can the ex-spouse still leave the balance in the plan?

[ETA Consulting LLC]

Yes. There is no statutory rule stating the Alternate Payee must receive the funds when the Participant receives a distribuiton. They would typically want to leave it there if they are not 59 1/2; in order to have the 10% early withdrawal penalty waived when they decide they do need the funds.

Good Luck!

[GMK]

There is no statutory rule stating the Alternate Payee must receive the funds when the Participant receives a distribuiton.

Agreed, but I believe that the 10% penalty does not apply to payments paid to an alternate payee under a qualified domestic relations order (QDRO).

[masteff]

Agreed, but I believe that the 10% penalty does not apply to payments paid to an alternate payee under a qualified domestic relations order (QDRO).

I think ETK's point was that a distribution from the 401(k) qualifies for 10% exception... but if the AP rolled it over to an IRA then the 10% exception would no longer apply. Thus the incentive to keep it in the k plan.

[GMK]

Ah, yes. Good point. Thanks.

[mbozek]

Agreed, but I believe that the 10% penalty does not apply to payments paid to an alternate payee under a qualified domestic relations order (QDRO).

I think ETK's point was that a distribution from the 401(k) qualifies for 10% exception... but if the AP rolled it over to an IRA then the 10% exception would no longer apply. Thus the incentive to keep it in the k plan.

Under IRC 402(e)(1 )spouse AP has the same rights as participant to to rollover interest in plan to an IRA or own plan.

Alternate payee under a QDRO is a beneficiary of his/her interest in plan assets separate from employee under the plan who can elect distribution when permitted under the plan. AP can roll that interest over to an IRA without paying 10% penalty tax as well as receive distribution without paying 10% tax.

[masteff]

Under IRC 402(e)(1 )spouse AP has the same rights as participant to to rollover interest in plan to an IRA or own plan.

Alternate payee under a QDRO is a beneficiary of his/her interest in plan assets separate from employee under the plan who can elect distribution when permitted under the plan. AP can roll that interest over to an IRA without paying 10% penalty tax as well as receive distribution without paying 10% tax.

Agreed, but then it can't be distributed from the AP's IRA and be exempt from 10% (unless AP meets one of the other exceptions). There is no QDRO 10% exception from an IRA even if it was a rollover from a QP.