QDRO QDRO Tax Implications & Benefits Planning

Question 1

When an alternate payee receives a distribution from a qualified plan pursuant to a QDRO, who is responsible for paying the federal income tax on that distribution?

Accepted Answer

The alternate payee

Answer

Under IRC Section 402(e)(1)(A), the alternate payee — not the participant — is taxed on distributions received directly from the plan pursuant to a valid QDRO.

Question 2

An alternate payee who receives a QDRO distribution directly from a qualified plan (without rolling it over) and is under age 59½ is:

Accepted Answer

Exempt from the 10% early withdrawal penalty

Answer

IRC Section 72(t)(2)(C) provides a special exception to the 10% early withdrawal penalty for QDRO distributions received by alternate payees, regardless of the alternate payee's age.

Question 3

If an alternate payee receives a QDRO distribution and chooses to roll it over to a traditional IRA, the tax consequence at the time of the rollover is:

Accepted Answer

No immediate tax; taxes are deferred until IRA withdrawals are made

Answer

Rolling a QDRO distribution into a traditional IRA is a tax-free event; income taxes are deferred until the alternate payee takes distributions from the IRA.

Question 4

When a plan makes a direct distribution to an alternate payee under a QDRO, the mandatory federal income tax withholding rate applied to eligible rollover distributions is:

Accepted Answer

20%

Answer

Plans are required to withhold 20% federal income tax on eligible rollover distributions paid directly to an alternate payee unless the distribution is sent directly to an IRA or another plan via a direct rollover.

Question 5

For a participant in a qualified plan, the transfer of funds to an alternate payee pursuant to a QDRO is treated for tax purposes as:

Accepted Answer

A non-taxable transfer with no income recognized by the participant at the time of transfer

Answer

The participant does not recognize income when the plan transfers funds to the alternate payee under a QDRO; the tax consequence falls entirely on the alternate payee upon distribution.

(QDRO) Certified Qualified Domestic Relations Order Specialist Practice Test

(QDRO) Certified Qualified Domestic Relations Order Specialist Practice Test

QDRO QDRO Tax Implications & Benefits Planning