A qualified domestic relations order (QDRO) is a court order or judgment that requires that all or a part of a person’s participant retirement benefits be paid to a spouse, former spouse, child or other dependent of the “participant.” The recipient of the retirement benefits is called the “alternate payee.” Administrators of pension, profit sharing, or stock bonus plans (retirement plans) must give their written approval to a proposed QDRO. A QDRO must contain specific language that identifies the retirement plan, names and addresses of the participant and alternate payee, and the amount and total number of payments to the alternate payee under the QDRO.
When the alternate payee is the spouse or former spouse, then the alternate payee pays income taxes on the QDRO payments. If the alternate payee is a child or other dependent, then the participant pays income taxes on the QDRO payments.
If the participant under the retirement plan would have been eligible for a rollover, then the alternate payee may make a tax free rollover to a traditional IRA or to a qualified plan. If the plan participant was born before 1936, the distribution may be eligible for special averaging for tax purposes if the distribution meets an IRS lump sum distribution test. If the distribution meets the IRS requirements, the recipient qualifies for a 10 year averaging and 20% capital gains. If the plan participant was born after 1935, the alternate payee is not eligible for the special tax treatment.
For any questions or concerns, please feel free to contact
the law office of Arlington Heights attorney Robert S. Thomas.
1655 N Arlington Heights Rd, Suite 300West
Arlington Heights
IL 60004
847-392-5893 phone
info@attorneyrobertthomas.com
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info@attorneyrobertthomas.com
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