A QDRO is defined as a judgment, decree (divorce decree) or order (such as a property settlement agreement or separate maintenance agreement) that creates or recognizes an alternate payee’s (ex-spouse, child or other dependents) right to receive all or a portion of a participant’s retirement plan benefits. A properly designed QDRO will allow you to transfer retirement plan assets without violating your plan’s distribution rules. What this means is that the party receiving the retirement plan assets will be the one responsible for any related income taxes and not the participant that is transferring the assets.
What Provisions Must a QDRO Contain?
Under Section 414(p)(2) of the Internal Revenue Code, the QDRO must contain the following:
- The name and last known mailing address of the participant and the name and mailing address of each alternate payee covered by the order,
- The amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee, or the manner in which such amount or percentage is to be determined,
- The number of payments or period(s) for which the payments are required, and
- Specify each plan to which the order applies
Under Section 414(p)(2) of the Internal Revenue Code, the QDRO must not contain the following:
- Any provision that requires the plan to provide any type or form of benefit or any option not otherwise provided under the plan.
- Any provision that requires the plan to provide increased benefits.
- Any provision that requires payment of benefits to an alternate payee that are required to be paid to another alternate payee under a previous existing QDRO.