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Posted by Alan on September 15, 2008, 11:55 am
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Paul Thomas wrote:
>> Husband and wife are getting a legal separation. He is 59, she turned
>> 55 in 2008. He retired two years ago from New York State and has a
>> balance of a couple hundred thousand dollars in his 457 account.
>>
>> As part of the agreement, she will get one-half of his account
>> balance. What are the tax and penalty implication of this transfer?
>
>
> If done wrong, the husband gets stiffed with the tax bill.
>
> So, talk to the husband's attorney and get a QDRO - Qualified Domestic
> Relations Order. They'll know what you're talking about, and if not, find
> another attorney who does.
>
>
>
>> She has not worked in recent years, but has an IRA account.
>>
>> Does this transfer need to be wholly rolled over to this IRA to avoid
>> taxes and penalties?
>
>
> The QDRO splits the pension with no current tax implications. What she does
> with it after that is her call.
>
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>
>
>
>> If she takes part of the transfer in cash and part as a rollover to
>> her IRA, presumably the cash portion is taxable income. Is there also
>> a 10% penalty on this portion?
>>
>> If she rolls over the entire amount to her IRA and later withdraws
>> some of those funds, will there be penalties? Once the funds are in
>> her IRA, does she need to wait to age 59.5 to avoid penalties?
>
>
>
> She needs to talk to her legal and tax advisors.
>
> He needs to do the same.
>
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To add to Paul's reply: It is important that the QDRO not only
comply with federal law but it must also comply with state law.
Every state that has a 457 plan will have a statute on the books
and corresponding rules and regulations for their 457 plan.
Buried in those rules & regulations will be the requirements for
a valid QDRO.
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