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Discussion Forum Index --> Advanced Tax Questions --> Taxability to spouse of a 401k distribution in a divorced
Discussion Forum Index --> Tax Questions --> Taxability to spouse of a 401k distribution in a divorced
Williamjevans@ca.rr.com (talk|edits) said:
| 24 April 2008
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| Client called this morning about her 401K plan. She is paying exhusband $100,000. from the plan. He is 59 1/2 and she is not. Is the withdrawal taxable to her plus the penalties?
Jack
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Newtaxguy (talk|edits) said:
| April 24, 2008
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| There are definitely ways to do this as part of a divorce settlement that reduce or eliminate tax to your client.
Make sure your client has obtained the counsel of an expert in divorce financial matters.
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Aleerhoff (talk|edits) said:
| 24 April 2008
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| The ex husband will be taxed on the distribution; the participant (the former wife) will not be. Since the withdrawal is due to a divorce, the ex husband is not subject to the early withdrawal penalty of 10%.
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Aleerhoff (talk|edits) said:
| 24 April 2008
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| Clarification - I must add that the ex husband is taxed on the distribution if subject to a Qualified Domestic Relations Order.
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JR1 (talk|edits) said:
| April 24, 2008
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| Actually, she's the one taxed of no QDRO, it's deemed as HER distribution even tho' she doesn't keep the money. Really sucks.
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Jdugancpa (talk|edits) said:
| 24 April 2008
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| I think it may be possible to do a rollover to his IRA based on an QDRO and then he takes a distribution from that to avoid the 10% penalty. Who pays the tax is a matter for the divorce settlement.
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JR1 (talk|edits) said:
| April 24, 2008
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| Let's get the players straight. She is the one with the 401k, and He's the one receiving a part of that as a divorce settlement. Without a QDRO, I recall that what happens is that she takes a distribution, which is taxable to HER, and gives him the money. With a QDRO, the distribution comes out, but is NOT taxable to her, and then, as JD suggests, he can then roll that to an IRA.
Is that all right?
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Riley2 (talk|edits) said:
| 24 April 2008
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| JR is right. It would be malpractice for a tax advisor to neglect to mention the necessity of a QDRO. Some family law attorneys are charging as much as $3,000 to draft a QDRO, but it is well worth the money to avoid wasting assets and incurring unnecessary tax bills.
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Joanmcq (talk|edits) said:
| 24 April 2008
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| and no penalty. If she takes out the money and gives it to him, she loses $10k off the bat to the penalty, not to mention the tax. Well worth a decent attorney. With a QDRO, he can roll it into an IRA as JR & JD suggested or take the distribution; if he's over 59.5 he'd be taxed on it but no penalty.
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Nancyshoemake (talk|edits) said:
| 25 April 2008
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| with a QDRO he won't have the penalty if he takes it out due to divorce.
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Kevinh5 (talk|edits) said:
| 25 April 2008
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| Nancy, be careful, there is still income tax to pay even if there are no penalties. Who pays the taxes depends on who actually takes the distribution.
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Riley2 (talk|edits) said:
| 26 April 2008
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| On a qualified plan, the distribution is always taxed to the participant or his beneficiary (unless the participant obtains a QDRO).
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