Recently a client asked if a sizable payment being made from their Ex-spouse’s 401k to them was taxable.

This type of distributions is called a QRDO, Qualified Domestic Relations Order. This is how it generally works:

A QDRO allows a former spouse to receive a predefined amount of their spouse’s retirement plan assets. For example, a QDRO might pay out 50% of the account’s value that has grown during the marriage. The funds, as a result of the QDRO, could then be transferred or rolled over into an IRA for the beneficiary spouse.

So to answer my client, if the QDRO is sent directly to a new IRA, no, it will not be taxable.

Disclosures:http://www.hechteffect.net/?page_id=31