It depends on your circumstances and whether the benefits were paid to a child or other dependent, or if the benefits were paid to a spouse or former spouse. Going through the interview in TurboTax should capture the details.
Enter in the 1099-R as received.
To identify yourself as an Alternate Payee Under QDRO, follow these steps, presuming this distribution is not from an IRA:
- From the left menu, select Federal
- Select Other Tax Situations, the third tab from the left across the top
- Scroll down to Additional Tax Payments
- Extra Tax on Early Retirement Withdrawals select Start/Revisit
- Let's see if we can reduce your early withdrawal penalty Click Continue
- Identify the type of plan and click Continue
- These Situations May Lower Your Tax Bill. Enter the amounts you used for any of the following: Enter the amount in Alternate Payee Under QDRO and Click Continue
Please see these resources for more details:
IRS 2019 Publication 504 Divorced or Separated Individuals page 19: Benefits paid under a QDRO to the plan participant's spouse or former spouse generally must be included in the spouse's or former spouse's income.
IRS 2019 Publication 575 Pension and Annuity Income page 4 and page 30: Rollovers are tax free, in general.
Regarding the 10% penalty for early withdrawal:
IRC section 72(t)(2)(C) which states related to QDRO:
(t)10-percent additional tax on early distributions from qualified retirement plans
(1)Imposition of additional tax
If any taxpayer receives any amount from a qualified retirement plan (as defined in section 4974(c)), the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
(C)Payments to alternate payees pursuant to qualified domestic relations orders
Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1)).
(10)Determination of investment in the contract in the case of qualified domestic relations orders
Under regulations prescribed by the Secretary, in the case of a distribution or payment made to an alternate payee who is the spouse or former spouse of the participant pursuant to a qualified domestic relations order (as defined in section 414(p)), the investment in the contract as of the date prescribed in such regulations shall be allocated on a pro rata basis between the present value of such distribution or payment and the present value of all other benefits payable with respect to the participant to which such order relates.
(B)Domestic relations order The term “domestic relations order” means any judgment, decree, or order (including approval of a property settlement agreement) which—
relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant, and
is made pursuant to a State domestic relations law (including a community property law).
As part of a divorce settlement, I received a QDRO in the form of a separate 401k. Do I have to enter it as income? I haven't taken any distributions, and I was told that I only pay taxes on distributions or if I cash it out.
No, you do not need to file this as income because it is a judicial order in the United States, entered as part of a property division in a divorce or legal separation that splits a retirement plan or pension plan by recognizing joint marital ownership interests in the plan. It is not a taxable document thus doesn't need to be reported.
If you take distributions or cash out the plan, you will be issued a 1099-R, which is a taxable document.
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Thank you, DaveF1006! I've been scouring the IRS's 2020 Draft Pubs for hours trying to make sense of it all... What a relief.
I'd mark as Best Answer, but I'm new here and don't yet see where to do that...