Question

Scott and Charlotte are divorced, and Charlotte obtained a qualified domestic relations order (QDRO) assigning her 50% of Scott's qualified retirement plan benefit. How will the QDRO affect the benefits received from the plan?

A) Scott becomes an alternate payee of the plan under the QDRO.
B) The QDRO may specify when Charlotte receives the plan benefit as long as this option is allowed by the plan..
C) If Charlotte receives an early distribution from the plan pursuant to the QDRO, the distribution is tax exempt.
D) If Charlotte receives an early distribution from the plan pursuant to the QDRO, the distribution is exempt from the 10% early distribution penalty.

Answer 1

Charlotte is recognized as an alternate payee under the qualified domestic relations order and can receive a portion of the retirement benefits directly, with distributions exempt from the 10% early distribution penalty but not tax exempt.

D) If Charlotte receives an early distribution from the plan pursuant to the QDRO, the distribution is exempt from the 10% early distribution penalty.

Step-by-step explanation:

When Charlotte obtained a qualified domestic relations order (QDRO) assigning her 50% of Scott's qualified retirement plan benefit, she will not become an alternate payee. Instead, Scott retains his status as the participant, and Charlotte is recognized as an alternate payee who has the right to receive a portion of the benefits directly from the retirement plan. The QDRO can indeed specify when Charlotte receives the plan benefit, as long as the distribution options are permitted by the specifics of the plan. It is important to note that while distributions under a QDRO are not tax exempt, they are exempt from the 10% early distribution penalty. This means that even if Charlotte takes a distribution before the age at which such distributions would normally be allowed without penalty, she will not have to pay the additional 10% penalty that others might incur for an early withdrawal.