The benefits of a QDRO

Nevada residents who are getting divorced need to educate themselves about how to protect themselves against unnecessary financial losses. There are some losses that naturally come when assets must be split between two people. But, there are some ways to reduce those losses when the right choices are made.

The use of a qualified domestic relations order may well help with that. As the Internal Revenue Service explains, a QDRO can help a 401K plan owner avoid paying early withdrawal penalties and taxes on money from a 401K used to satisfy a property division settlement. A QDRO makes it legal for the plan owner’s spouse to receive distributions from the retirement account per a divorce agreement.

When the qualified domestic relations order is in effect, the recipient spouse assumes responsibility for taxes. This reduces the amount of money that the plan owner must let go. If that person reinvests the money into another retirement account, then taxes may be deferred until a retirement distribution is eventually taken.

The U.S. Department of Labor adds that a QDRO can allow the funds from a retirement account to be used to satifsy a spousal support or even a child support award. If used for spousal support, the recipient spouse still retains tax liability. If, however, a QDRO is established to help pay child support, the account owner will be responsible for any taxes on the money distributed from the account. Money can be paid to the child or dependent or to a guardian as well.