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A QDRO, qualified domestic relation order, is one of the most complicated issues in a divorce. You are not required to rollover your stock into an IRA at your bank. The attorney was probably most familiar with that option because it is the most common action take after a QDRO is issued.
There are several issues to consider when deciding where to put your stock. If you do decided on an IRA consider the following two points and please discuss your options with a good financial planner before you do anything.
Early distribution penalty - Assets distributed from a qualified plan in accordance with a QDRO are exempted from the 10% early-distribution penalty. If you will be using any portion of the assets immediately, it may be practical not to roll over that portion of the assets to an IRA. If you are under age 59.5, amounts rolled over to a Traditional IRA and later distributed from the IRA will be subject to the 10% early-distribution penalty, unless you meet an exception. You could have a portion of the amount processed as a direct rollover to your Traditional IRA and the balance paid to you. The amount that is processed as a direct rollover to your IRA will not be subject to tax withholding.
Tax Withholding - Because the qualified plan assets you receive pursuant to a QDRO are rollover eligible, amounts that are paid directly to you instead of to an eligible retirement plan through a direct rollover will be subject to mandatory withholding. This withholding is 20% for federal taxes and, depending on your state of residence, the payor may also withhold amounts for state taxes. Therefore, you may need to increase the distribution amount to ensure that the net amount you receive is sufficient to meet your immediate financial needs.
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