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camille22
Level 2

1099-R Issue with 401K split -Alimony?

I'm so distraught and hoping someone can help me.

My husband and I are legally separated and I cashed out half of my 401K ($50K) to give to him as part of our agreement in 2019. He rolled it into an IRA I believe, but I haven't spoken with him and don't really want to.  I received a 1099-R for the money, and in box 7 it said "1."  I indicated it was a roll-over. The IRS is saying I owe penalties and taxes on the money of $24,000 and need to declare it as part of my income. I do not have a good relationship with my ex and there is no way he will help me in any way getting this resolved. Can I count it as alimony?

10 Replies
camille22
Level 2

1099-R Issue with 401K split -Alimony?

Wanted to add to the above post, that we were legally separated through the court system in 2013.

Critter-3
Level 15

1099-R Issue with 401K split -Alimony?

You have real problems ... if YOU took a distribution from YOUR 401K then you need to pay taxes on the entire distribution on your tax return no matter what you did with the money or what he did with it.   YOU  did not  roll the money anywhere ... you gave the money to him.  Since you did not roll the money into an IRA in your name do not say you did in the program.  

 

To keep you from paying taxes on this amount this should have been done as a QDRO as part of the divorce decree ... the judge would have issued a QDRO to your 401K manager to issue a payment directly to him and the 1099-R would have been issued to him so you would have nothing to report.   Seek legal council before you do this again.  

Hal_Al
Level 15

1099-R Issue with 401K split -Alimony?

Q. Can I count it as alimony?

A. No.

 

" He rolled it into an IRA I believe"

That's between him and the IRS.  As for your tax return, you cannot treat it as a rollover.  It's a fully taxable distribution.  With coordination, it would have been possible for him to have reported some of the income, instead of you.  A QDRO (Qualified domestic relations order) distribution is not subject the the 10% early distribution penalty, but is still subject to income tax.

 

You are probably going to need professional help (a CPA, tax attorney or EA [enrolled agent]) in dealing with the IRS.  But, the bottom line, is you do income tax on this "income".

 

 

camille22
Level 2

1099-R Issue with 401K split -Alimony?

Thank you for your responses. Since it was a legal separation and not a divorce, the plan administrator would not follow the QDRO. They responded with 

"Under Federal law, the administrator of the retirement plan that provides the benefits affected by an order is the individual (or entity) initially responsible for determining whether a domestic relations order is a QDRO. Plan administrators have specific responsibilities and duties with respect to determining whether a domestic relations order is a QDRO." Apparently legal separation is not recognized in many states. 

 

I really want to do the right thing and if I do owe it, I'll have to figure out a way to pay it. I was in a bad situation  at that time and was willing to do whatever it took to resolve the issue.

camille22
Level 2

1099-R Issue with 401K split -Alimony?

Thanks again @Hal_Al and @Critter-3 !

Opus 17
Level 15

1099-R Issue with 401K split -Alimony?

@camille22 

You need to find an enrolled agent but I think you did this transfer in the wrong manner and you are going to pay for your lack of knowledge. The IRS can often waive the penalty especially if you have a good cause or if this is your first time with a penalty assessment. But you owe the tax, and the interest can’t be waived although it can be recalculated if the penalty is removed.

 

If you had waited until the divorce was final and obtained a QDRO, the money would’ve been transferred from you to your ex without tax consequences.  With the way you did the transfer, you made a withdrawal which is fully taxable to you, and your ex is not allowed to do a rollover, so their contribution would be limited to $5000. (If it would make you feel better, you can tip off the IRS to your ex‘s mistake if they didn’t already catch it.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
camille22
Level 2

1099-R Issue with 401K split -Alimony?

Thank you @Opus 17 . We have been legally separated for 7 years with no plans on getting a divorce. I will contact my lawyer tomorrow to see if he can recommend someone to assist. 

Opus 17
Level 15

1099-R Issue with 401K split -Alimony?


@camille22 wrote:

Thank you for your responses. Since it was a legal separation and not a divorce, the plan administrator would not follow the QDRO. They responded with 

"Under Federal law, the administrator of the retirement plan that provides the benefits affected by an order is the individual (or entity) initially responsible for determining whether a domestic relations order is a QDRO. Plan administrators have specific responsibilities and duties with respect to determining whether a domestic relations order is a QDRO." Apparently legal separation is not recognized in many states. 

 

I really want to do the right thing and if I do owe it, I'll have to figure out a way to pay it. I was in a bad situation  at that time and was willing to do whatever it took to resolve the issue.


This is a bit peculiar.  The IRS says that a QDRO is issued according to the state's domestic relations law.  So yes, some states may issue a QDRO only for a final divorce, and some states may issue a QDRO for legal separation.  But you said you had a QDRO?  Or did I mis-read your statement.

 

This is what the IRS says,

 

A qualified domestic relations order (QDRO) is a judgment, decree, or court order (including an approved property settlement agreement) issued under a state's domestic relations law that:

  • Recognizes someone other than a participant as having a right to receive benefits from a qualified retirement plan (such as most pension and profit-sharing plans) or a tax-sheltered annuity;

  • Relates to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of the participant; and

  • Specifies certain information, including the amount or part of the participant's benefits to be paid to the participant's spouse, former spouse, child, or other dependent.

 

It's possible that you did not have a valid QDRO, or that the court order did not contain the necessary information.  But it does not seem that the plan administrator (who probably administers plans from employers all across the country) has the authority to determine for themselves whether a particular state covers separations in their QDROs.  Depending on your state law and the exact wording of the order (if you had one), you might have an argument that the plan trustee used the wrong code on the 1099-R form because they improperly refused to honor the order.  So you really need to see a qualified tax specialist.  Good luck.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
camille22
Level 2

1099-R Issue with 401K split -Alimony?

It was a QDRO in every aspect but for some reason the 401K disbursement. It included everything from child support, visitation rights and disbursement of marital property. My lawyer fought with them for over 4 years on this, but they won't accept QDRO for a legal separation. I was paying more in lawyer costs than the total amount of the QDRO.

 

My state recognizes a legal separation, but the state that the plan administrator is legally operating in, does not. Not sure if I worded that correctly. I feel like I'm stuck between a rock and a hard stone and am going to try and find a resolution to this by year end. 

 

My ex waited for 6 years while I was fighting this and it got to the point where he was refusing to pay for my daughter's college if he didn't get his share.

 

Opus 17
Level 15

1099-R Issue with 401K split -Alimony?


@camille22 wrote:

It was a QDRO in every aspect but for some reason the 401K disbursement. It included everything from child support, visitation rights and disbursement of marital property. My lawyer fought with them for over 4 years on this, but they won't accept QDRO for a legal separation. I was paying more in lawyer costs than the total amount of the QDRO.

 

My state recognizes a legal separation, but the state that the plan administrator is legally operating in, does not. Not sure if I worded that correctly. I feel like I'm stuck between a rock and a hard stone and am going to try and find a resolution to this by year end. 

 

My ex waited for 6 years while I was fighting this and it got to the point where he was refusing to pay for my daughter's college if he didn't get his share.

 


Well, although the plan administrator would not accept the QDRO, you can still fight the tax assessment, because the IRS has their own rules and might accept your argument.  Good luck. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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