My ex-husband had a 401K (Retirement Savings Plan) and it was rolled over to me as Alternate Payee via QDRO.
A new account was created under his plan in my name and the funds were dispersed into that account.
If the account in my name was listed as "Alternate Payee under QDRO", and then funds were pulled from that account to pay marital debts is it subject to any additional taxes?
I ask because I have started the filing process and it tells me that I do not have to pay taxes on it. Makes me a bit nervous if I am doing something wrong?
A distribution from a QDRO is subject to income tax, but is not subject to early withdrawal penalties.
Payments to the alternate payee under a Qualified Domestic Relations Order (QDRO) are listed in the exceptions table HERE.
It sounds like you've done everything correctly, but if you're seeing something else or have additional questions please let us know.
Susan, I am getting this message at the end of the section and what is throwing me off is the bolded sentence below. I did actually withdrawal the funds because it was to cover marital debts.
Is this just another way of saying that I dont face that early withdrawal penalty?
Thanks for sharing this message. This is a little different.
There are two transactions that typically take place related to QDRO distributions. The first is establishing the account in the first place, which can show up as a qualified rollover - this is shown with a code "G" in Box 7 of your 1099-R.
If you then withdrew the funds to pay expenses, this should create a second 1099-R or at least a second code.
I would expect your second 1099-R (or code) to have 2 or 7 in Box 7. If this is what you see, and you're getting this message, it indicates that the question about rolling over the funds was likely answered incorrectly in the follow up steps after entering your 1099.
If you have two 1099-R forms and one has the code G then still answer "no" to the rollover question in the follow ups, because it will already know that one is a rollover.
You can return to the questions in the 1099-R section to revisit those questions, or sometimes it is simplest to delete the forms and re-enter to ensure that all of the questions reappear.