What Are The Tax Consequences Of Taking a Distribution From a Pension or 401(k) Plan?
Posted on Jan 28, 2014 7:53am PST
Q. Tiffany T. of Pennsylvania asks: "I Am Going Through a Divorce and We Recently Had Our Retirement Plans,
Pension and 401(k)'s Evaluated. If We Are Able to Immediately Offset
One Another Before the Divorce is Finalized, What Are the Tax Consequences
Of Taking a Distribution From a Pension or 401(k) Plan?"
A. Evan E., in the QDRO Department of Pension Evaluators & QDROS Of
Troyan, Inc Associates Group answers: "The courts are typically concerned that if there is a taxable event
(distribution from the pension plan so to speak) that occurs via immediate
offset within a short time after dissolution of the marriage, it should
consider the tax consequences in computation the present value of pension
benefits on divorce.
Pension payouts are taxed first to the recipient as personal ordinary income
in the year in which received. If paid as an annuity, (monthly benefit)
the total amount received each year is subject to personal ordinary income
tax. If paid in a lump sum, such as in the case of a 401(k) or cash-type
Plan, the pension may be eligible to be rolled over into an IRA to defer
taxes. Annuity payments are not permitted to be rolled over."
Evan Edelstein
Lead QDRO Consultant
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