QDRO: Qualified Domestic Relations Order

A Qualified Domestic Relations Order (QDRO) is a court order that directs a qualified retirement plan to pay benefits to someone other than the employee who earned them. A QDRO is commonly used during a divorce or legal separation to divide retirement assets, but it may also be used to satisfy child support or alimony obligations.

Under a QDRO, benefits may be paid to a:

• Spouse
• Former spouse
• Child
• Other dependent of the retirement plan participant

The person receiving the benefits is known as the alternate payee.

How Are QDRO Retirement Distributions Taxed?

In most cases, retirement distributions paid to a spouse or former spouse under a QDRO are taxable to the recipient, not the employee who earned the retirement benefit.

For federal income tax purposes, the alternate payee generally reports the distribution as though they were the plan participant.

Key Tax Rules

• QDRO distributions are generally taxable as ordinary income.
• Federal income tax withholding may apply.
• Distributions paid to a spouse or former spouse under a QDRO are generally exempt from the 10% early withdrawal penalty, even if the recipient is under age 59½.
• The distribution is typically reported on Form 1099-R.

Can a QDRO Distribution Be Rolled Over?

Sometimes.

If the alternate payee is the employee's spouse or former spouse, they may generally roll over all or part of an eligible QDRO distribution into:

• An IRA
• Another eligible retirement plan

The rollover rules generally apply in the same way they would if the employee had received the distribution directly.

If the distribution is rolled over properly, the taxable portion may be deferred until a future distribution occurs.

How Do I Report QDRO Benefits on My Tax Return?

If you receive retirement benefits under a QDRO, you will generally receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

You must report the Form 1099-R information on your tax return.

Entering Form 1099-R

To report a QDRO distribution, follow the steps below.

1. Select Federal
2. Select Income (Select My Forms)
3. Select 1099-R, RRB, SSA
4. Select Add or Edit a Form 1099-R
5. Enter the information exactly as shown on your Form 1099-R

After entering the form, continue through the interview to save the information to your return.

What If I Didn't Receive Form 1099-R?

If you received QDRO benefits but did not receive a Form 1099-R, you may still be required to report the distribution on your tax return.

In that situation, you can use a Substitute Form 1099-R.

To Create a Substitute Form 1099-R

1. Select Federal
2. Select Income (Select My Forms)
3. Select 1099-R, RRB, SSA
4. Select Add or Edit a Form 1099-R
5. Check the box indicating the form is a Substitute 1099-R
6. Enter the available distribution information

Be sure to retain any records you have regarding the distribution, including court documents, account statements, or correspondence from the retirement plan administrator.