401 (K) QDRO DISTRIBUTION NO 10% PENALTY
Often times during a divorce, one of the parties will receive a Qualified Domestic Relations Order in the other parties 401(k). Often times this is a great opportunity to obtain funds to purchase a new home or payoff marital debt. Internal Revenue Code Section 414(t)(2)(C) exempts from the 10% “early distribution” tax “payment to alternate payees pursuant to Qualified Domestic Relations Order”(QDRO). The 10% tax is generally imposed on distributions to recipients under 59 and one half years of age.
As a result, rather than paying the underlying tax plus a 10% penalty fee. You only end up paying the underlying income tax. It is important to note that this only applies to 401(k) distributions and does not apply to IRA distributions.
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Grand Rapids Divorce Attorney
161 Ottawa NW Suite 201
Grand Rapids MI 49503
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