leaving money in a 401(k) | Ed Slott and Company, LLC

leaving money in a 401(k)

Just spoke with a prospect who divorced over 10 years ago was awarded a settlement from her ex-husbands 401(k). She still has the funds in the 401(k) plan with the ex-husbands employer in her name.

I can think of many reasons why she should do a rollover to an IRA account, but wanted to ask, are there any pros to leaving it in the 401(k) plan?

  • The most obvious advantage would be if she is under 59.5 and can take a distribution from the 401k, it would be penalty free under the QDRO penalty exception. Not so from an IRA. 
  • There are RMD implications also. The required beginning date for RMDs is based on the participant, not the alternate payee. As such, if the participant is older and not still working, the alternate payee would be subject to RMDs that she otherwise would rather avoid. But if the alternate payee is older, she might avoid RMDs she would have from an IRA if the participant is still working or under 70.5.
  • While the plan probably allows her to take distributions, it is also possible that the plan includes provisions that do not allow her to take distributions until the ex husband would qualify.

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