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401(k); 457; 403; Defined Benefit Pensions  

QDRO for a 401(k) Retirement Plan; 403(b); 457 Plans


Summary:  A 401(k) retirement plan is a defined contribution plan.  A defined contribution plan is fairly easy to value because the plan account depends on employee (and employer) contributions, not years of service or age. After division by a QDRO, it is a more flexible account with more options available to the former spouse who receives the QDRO share (alternate payee). State and local government 453(b) and 457 plans are similar.


A QDRO for a 401(k) Retirement Plan; and 403(b) and 457 Plans

A 401(k) plan is one of the various forms of a defined contribution plan. Local and state government plans such as 403(b) and 457 plans are similar.

A 401(k) is usually a combination of contributions from an employer as well as the Participant employee. The taxation of the withdrawals varies, because of the variation in the contributions.

Usually the Alternate Payee spouse can receive a portion of the former spouse Participant's 401(k) and take a withdrawal without paying the 10% early withdrawal penalty. If an early distribution is wanted, then it is best to request the plan administrator approve a 401(k) QDRO which provides for the early distribution before the new 401(k) QDRO account is set up.

Since the page on defined contribution plans applies to a 401(k) plan, that information will not be repeated here.

My advice to a former spouse Alternate Payee who is getting a share of a 401(k) plan pursuant to a QDRO, is that he or she roll it out into their own 401(k) plan. Most existing 401(k) plans will accept rollovers from other 401(k) plans

Taking control of a 401(k) QDRO account also may provide the opportunity to invest in more secure investments (such as cash money markets, in accordance to the weak stock market in 2010.)

Otherwise, roll it out into an IRA. However, be careful about the restrictions on IRA withdrawals. An IRA is a much less flexible retirement tool, as compared to a 401(k) plan. Also, you will likely get stuck with a 10% early withdrawal penalty if you take an early distribution from an IRA plan. So, if you have to take a distribution as soon as a QDRO is processed, take the distribution before you roll any money into an IRA.

In other words, I suggest that an Alternate Payee who receives a QDRO portion of a 401(k) plan should remove that account from the control of the participant spouse's employer.

GIF The material on this web site is for informational purposes only. This law firm practices only in Colorado. An attorney-client relationship is established only when an agreement as to the scope of representation and fees has been signed and a retainer paid. Colorado law may consider these web site materials to be attorney advertising. GIF
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