Qualified Domestic Relations Orders (QDROs)
A Qualified Domestic Relations Order (QDRO) is a legal order, typically issued during a divorce or legal separation, that recognizes the right of an alternate payee (such as a spouse or child) to receive a portion of the benefits from a retirement plan.
The QDRO must meet specific criteria set by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. It details the amount of benefits or the percentage of a participant’s retirement account that will be assigned to the alternate payee. Unlike standard divorce decrees, a QDRO allows for the division of retirement assets without incurring early withdrawal penalties or taxes for the recipient.
For example, if a couple is divorcing and one spouse has a 401(k) account, a QDRO can specify that 50% of the account balance will be allocated to the other spouse, enabling them to receive their entitled share directly from the retirement plan.
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