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Christopher B, Esq.
Christopher B, Esq., Tax Attorney
Category: Tax
Satisfied Customers: 2677
Experience:  associate attorney
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Do I pay income tax an Ex’s retirement money I received?

Customer Question

I have a settlement from a QDRO in the State of Florida I can now access. I got 15% of my ex’s retirement. When I access the money, do I pay income tax on it? I want to make a cash withdrawal from this account. When I do, do I need to pay income tax as it is a divorce settlement
Submitted: 2 months ago.
Category: Tax
Expert:  Christopher B, Esq. replied 2 months ago.

Thank you for your question and for using justanswer.com.

Assets distributed from a qualified plan in accordance with a qualified domestic relations order (QDRO) are exempted from the 10% early-distribution penalty but you will be subject to tax withholding even if you are under age 59½. To avoid the penalty, the following criteria must be met:

(1) The retirement plan must be a qualified plan covered by ERISA (e.g. 401K and other Defined Contribution Plans);

(2) The funds must be paid to an alternative payee, not the owner of the account; and

(3) A Qualified Domestic Relations Order (QDRO) must be created and used to divide the plan

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. The amount paid is taxable income to you, so you will pay as if it is normal income to you in your normal tax bracket.