How to Transfer Roth 401k Assets to a Spouse in Divorce

[manxixe]

My question involves a marriage in the state of: nevada

background- I have two 401k accounts: one from a previous employer that I didn't roll over to a new plan and another one that is with my current employer

In our uncontested divorce, since both 401k accounts currently had approx the same amount of money in them, I agreed to transfer the one at the previous employer to my ex-wife.

Now that the divorce decree is almost final with the judge, i've been trying to research the best way to transfer the proceeds in that 401k to her without either of us being hit with early withdrawal penalties or other tax consequences. we're amicable on all things so we have full cooperation going for us at least.

About the account in questions. It's a Roth 401K with about $17k in it. I've read up on QDROs and i'm not 100% certain it's the best route given our situation. I don't need to divide the assets in this account with her, she is in essence getting 100% of whatever is in there.

Since it's a Roth 401k, my first plan was to open a new Roth IRA at another institution under as "My name OR Her name" , then just do a the normal rollover paperwork with where the 401k is currently being administered to get the funds out of a 401k. Then once everything was moved (and hopefully by doing it this way, avoiding any taxation issues or penalties), removing my name from that IRA so it's just solely in her name.

Even easier would be to have her open that new IRA in just her name and then do the rollover into it, but I'm not sure if they will process a rollover without having my name at least somewhere on the receiving account.

any thoughts or advice on how best to get this done are greatly appreciated. thanks in advance!

[adjusterjack]

i've been trying to research the best way to transfer the proceeds in that 401k to her without either of us being hit with early withdrawal penalties or other tax consequences.

I've read up on QDROs and i'm not 100% certain it's the best route given our situation.

A QDRO is the best and only way to transfer a qualified retirement account (IRAs, Roths, 401k) and still preserve the tax deferral even if you are transferring a whole account.

Since it's a Roth 401k, my first plan was to open a new Roth IRA at another institution under as "My name OR Her name" , then just do a the normal rollover paperwork with where the 401k is currently being administered to get the funds out of a 401k.

Nope, can't do that.

Qualified retirement accounts cannot be held jointly.

Even easier would be to have her open that new IRA in just her name and then do the rollover into it,

Nope, can't do that either.

any thoughts or advice on how best to get this done are greatly appreciated.

You're going to have to do a QDRO no matter what.

Trust me on that. I wrote three QDROs for my divorce and learned all about them.

I suggest you start by contacting the custodian of the account that you want to transfer and find out specifically the name and phone number of the person or entity that handles the transfer of any account by QDRO. Then call that person and ask if they have a sample QDRO format that is acceptable to them and could they provide it to you. If they can't or won't do that you can probably find QDRO samples on the internet and submit a rough draft to that person to see if that format with all your and her information is acceptable and tweak it if need be. If it's OK, submit it to the judge for signature, and convey it to the person for handling.

If you are not comfortable creating your own QDRO and you don't want 35% of your money going to the IRS then you would be wise to hire an attorney who has experience with QDROs (not all attorneys know how to do it) and get it done right.

[manxixe]

oh well, there goes all my good ideas ...LOL

seriously though, i really appreciate all the info you provided. sounds like it's QRDO for me then.

one last question for you - once the QDRO has been fully exercised and the Roth 401K is in her name, can she then go and create another IRA elsewhere and do a rollover to it just as I would be able to do when it was in my name? the account is currently held at an ex-employer of mine and i think it'd be easier for everyone to just get it away from that company sooner than later.

thanks!

A QDRO is the best and only way to transfer a qualified retirement account (IRAs, Roths, 401k) and still preserve the tax deferral even if you are transferring a whole account.



Nope, can't do that.

Qualified retirement accounts cannot be held jointly.



Nope, can't do that either.



You're going to have to do a QDRO no matter what.

Trust me on that. I wrote three QDROs for my divorce and learned all about them.

I suggest you start by contacting the custodian of the account that you want to transfer and find out specifically the name and phone number of the person or entity that handles the transfer of any account by QDRO. Then call that person and ask if they have a sample QDRO format that is acceptable to them and could they provide it to you. If they can't or won't do that you can probably find QDRO samples on the internet and submit a rough draft to that person to see if that format with all your and her information is acceptable and tweak it if need be. If it's OK, submit it to the judge for signature, and convey it to the person for handling.

If you are not comfortable creating your own QDRO and you don't want 35% of your money going to the IRS then you would be wise to hire an attorney who has experience with QDROs (not all attorneys know how to do it) and get it done right.

[cbg]

She can. But it is her choice, not yours, whether to do so or not.

[adjusterjack]

once the QDRO has been fully exercised and the Roth 401K is in her name, can she then go and create another IRA elsewhere and do a rollover to it

Yes.

And it's a relatively simple and painless process.

All she would need to do is open a Roth IRA and fill out the transfer papers. The new custodian sends the papers to the old custodian and the old custodian sends the funds. It's a direct transfer.

I've done it on several occasions.

A word of caution. Do not open IRAs with banks. The securities departments of banks, though they share the same names, are really separate licensed brokerages that work on commission. As such, commissions are outrageously high. You're better off using an online brokerage like Ameritrade or Scottrade or the like that have low commissions and no fees.

[llworking]

I would be inclined to get the IRA out from under the former employer myself, before doing the QDRO. It would be a simple process for you to roll it into an IRA in your name, and then do a QDRO to transfer it to your spouse.

[budwad]

Transferring a qualified retirement account in full or in part to a former spouse (after the divorce is final) is not a taxable event. A QDRO is not needed.

Since OP is transferring an entire account, all he has to do is send a letter of instruction to the trustee that he wants the name changed on the account after the divorce is final. The trustee may request a copy of the final divorce decree. Sometimes they do and sometimes the don't.

Or it can be transferred with a direct transfer, you direct the trustee to transfer the settlement amount directly to the trustee of a new or existing retirement account set up in the name former spouse.

[llworking]

Transferring a qualified retirement account in full or in part to a former spouse (after the divorce is final) is not a taxable event. A QDRO is not needed.

Since OP is transferring an entire account, all he has to do is send a letter of instruction to the trustee that he wants the name changed on the account after the divorce is final. The trustee may request a copy of the final divorce decree. Sometimes they do and sometimes the don't.

Or it can be transferred with a direct transfer, you direct the trustee to transfer the settlement amount directly to the trustee of a new or existing retirement account set up in the name former spouse.

Bud, I do not know where you got that, but without a QDRO transferring the account to her it most certainly could be a taxable event.

[budwad]

Bud, I do not know where you got that, but without a QDRO transferring the account to her it most certainly could be a taxable event.

When I got divorced, I had lots of retirement accounts that had to be divided. All of them were done without a QDRO in one of the way I posted.

This from the IRS:

Qualified Domestic Relations Order


A qualified domestic relations order (QDRO) is a judgment, decree, or court order (including an approved property settlement agreement) issued under a state's domestic relations law that:


•Recognizes someone other than a participant as having a right to receive benefits from a qualified retirement plan (such as most pension and profit-sharing plans) or a tax-sheltered annuity,


•Relates to payment of child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of the participant, and


•Specifies certain information, including the amount or part of the participant's benefits to be paid to the participant's spouse, former spouse, child, or other dependent.

A divorce decree can serve the same purpose as a QDRO .

IRA transferred as a result of divorce. The transfer of all or part of your interest in a traditional IRA to your spouse or former spouse, under a decree of divorce or separate maintenance or a written instrument incident to the decree, is not considered a taxable transfer. Starting from the date of the transfer, the traditional IRA interest transferred is treated as your spouse's or former spouse's traditional IRA.

http://www.irs.gov/publications/p504...link1000176023

[adjusterjack]

A divorce decree can serve the same purpose as a QDRO .

True. Providing that:

1 - It contains the proper QDRO type wording.
2 - That it's accepted by the custodian of any particular account.

The disadvantage of using the divorce decree is that you are providing unrelated personal information to a financial institution. Yes, a divorce decree is public record but it gets limited exposure just sitting in a court file.