qualified domestic relations order

Your Money. Your Terms – How to Avoid Paying the 10% Penalty on Retirement Savings Withdrawals – Part 1 QDRO

Avoid Paying the 10% Penalty on Retirement Savings Withdrawals with a Qualified Domestic Relations Orders (QDRO). Applies to IRAs and tax reporting.

Sep 27, 2016

Using a QDRO to Withdraw Retirement Savings without a 10% Penalty

There are numerous exceptions to the 10% penalty on retirement savings. In this series, we will help educate consumers on some important exceptions.

For the first entry in our series, we identify the Qualified Domestic Relations Order (QDRO) and how this exception relates to divorce.

Qualified Plans

A QDRO is commonly created as part of a divorce settlement, especially when retirement balances are significant. The court will determine what amount of the qualified retirement plan’s balance is to be presented to the ex-spouse. Once finalized by the court, a QDRO is drafted and provided to the ex-spouse. This document allows the ex-spouse to direct the retirement plan custodian to distribute those funds.

The plan participant will not be taxed or penalized on the distribution.  The ex-spouse may choose to roll the funds into their own retirement plan or IRA.  In this case, there would be no tax or penalty to them either.


IRAs are not subject to QDRO requirements.  Assets are split via a Transfer Incident due to Divorce.  This is NOT an automatic exception to the 10% penalty.

Tax Reporting

The custodian/trustee of the assets should report the withdrawn amounts on form 1099r using the ex-spouse’s name and social security number. Codes will vary depending on the type of distribution elected. Tax liability will reside with the party that ultimately withdraws the funds.