What are the benefits of a QDRO?

If you are one of the many Pennsylvania residents who must give a portion of your 401K savings to your spouse as part of your divorce settlement, you will want to know about the qualified domestic relations order. Many people might think it seems logical that if you include details of how an account should be split in your divorce decree you should be able to take money out of the account and give it to your former spouse with no issue. However, this is not so.

If you do this, you may be on the hook to pay early withdrawal penalties and taxes that could eat up a large portion of whatever savings you have left in your account. The United States Department of Labor explains that you may be able to avoid these repercussions by using a QDRO. It is through the QDRO that your spouse can be identified as an alternate payee on your account.

With a qualified domestic relations order in place, money can be sent directly to your former spouse from your 401K. This takes you out of the loop for those penalties and taxes. If your former spouse chooses to put the money into another retirement account, they may also be able to avoid taxation on the amount received.

This information is not intended to provide legal advice but is instead meant to give divorcing Pennsylvania residents an overview of how they may protect some of their valuable retirement savings when splitting a 401K during a divorce.

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