Divorce and Its Impact on Your 401K Income

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Divorce and Its Impact on Your 401K Income

Posted On : Oct-26-2010 | seen (519) times | Article Word Count : 582 |

Divorce is always a painful affair but not only in the emotional sense. This life changing event can have immense effect on your financial well being as well. So what happens when you have a reasonable 401K income and get divorced? In this article we try to analyze the significance of divorce on your 401K income.

In case of divorce, your former spouse, along with other dependents is likely to be entitled to a portion of the asset of 401 (k). The court issues a decree called a qualified domestic relations order or QDRO along with the divorce settlement, in which the details of what, when and how the 401 assets will be divided are mentioned.

In the QDRO judgment, the name of the person who would receive the share of 401 (k) assets is mentioned. The recipient who is also called the alternate payee could be the spouse, or former spouse, your child or any other dependents. It is the QDRO which defines the division of assets for alimony payments, property rights payments or child support payments. If any divorce proceeding is going on, one should ask the plan administrator of your company if they have any QDRO form for your plan. By filling such form early, one saves the time and other expenses.

One good part of QDRO is that the money that is removed from your account is not charged the 10 percent levied as federal income tax penalty for early withdrawal, irrespective of the fact that you mighty be younger than 59 and half years. Conversely, if the QDRO is not established properly, you will be charged 10 percent as federal penalty for your early withdrawal.

To make the QDRO acceptable under the law, one must ensure that two legal requirements are met properly. The first is to create QDRO correctly and the second is to verify it correctly. One should check the status of QDRO at both these stages for guaranteeing acceptance of it legally. These requirements are necessary to prevent unnecessary taxation as well as to stop someone from illegally getting access to your 401 (k) assets.

To get a QDRO, the division of assets must firstly be ordered by a court following the state laws. The QDRO has to include some information so that it can be valid. These are your name and your last mailing address, the name as well as address of your alternate payee, the amount or else the percentage of your account that would be given to the alternate payee, how the amount of percentage is to be found, the number of payments or periods for which the order is applicable and the plan for which the order is applicable.

For verification of your QDRO, you have to provide your plan administrator with the original court order or else a court certified copy of QDRO document. The plan administrator will do the formal procedures in establishing the legality of QDRO and then put the order into action. These procedures are the rules as set in the 401 (k) summary plan description (SPD).

The pan administrator will determine within 18 months time after the issuance of the order about the validity of the QDRO. The administrator will also determine in the evaluation period any amounts that are to be paid to the alternate payee. Finally, you and your alternate payee are to be notified about the validity of QDRO.

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<h1>Divorce and Its Impact on Your 401K Income</h1> Author: <a href='http://www.articleseen.com/profile_Articleseen Editorial Team.aspx'>Articleseen Editorial Team</a> Divorce is always a painful affair but not only in the emotional sense. This life changing event can have immense effect on your financial well being as well. So what happens when you have a reasonable 401K income and get divorced? In this article we try to analyze the significance of divorce on your 401K income.

In case of divorce, your former spouse, along with other dependents is likely to be entitled to a portion of the asset of 401 (k). The court issues a decree called a qualified domestic relations order or QDRO along with the divorce settlement, in which the details of what, when and how the 401 assets will be divided are mentioned.

In the QDRO judgment, the name of the person who would receive the share of 401 (k) assets is mentioned. The recipient who is also called the alternate payee could be the spouse, or former spouse, your child or any other dependents. It is the QDRO which defines the division of assets for alimony payments, property rights payments or child support payments. If any divorce proceeding is going on, one should ask the plan administrator of your company if they have any QDRO form for your plan. By filling such form early, one saves the time and other expenses.

One good part of QDRO is that the money that is removed from your account is not charged the 10 percent levied as federal income tax penalty for early withdrawal, irrespective of the fact that you mighty be younger than 59 and half years. Conversely, if the QDRO is not established properly, you will be charged 10 percent as federal penalty for your early withdrawal.

To make the QDRO acceptable under the law, one must ensure that two legal requirements are met properly. The first is to create QDRO correctly and the second is to verify it correctly. One should check the status of QDRO at both these stages for guaranteeing acceptance of it legally. These requirements are necessary to prevent unnecessary taxation as well as to stop someone from illegally getting access to your 401 (k) assets.

To get a QDRO, the division of assets must firstly be ordered by a court following the state laws. The QDRO has to include some information so that it can be valid. These are your name and your last mailing address, the name as well as address of your alternate payee, the amount or else the percentage of your account that would be given to the alternate payee, how the amount of percentage is to be found, the number of payments or periods for which the order is applicable and the plan for which the order is applicable.

For verification of your QDRO, you have to provide your plan administrator with the original court order or else a court certified copy of QDRO document. The plan administrator will do the formal procedures in establishing the legality of QDRO and then put the order into action. These procedures are the rules as set in the 401 (k) summary plan description (SPD).

The pan administrator will determine within 18 months time after the issuance of the order about the validity of the QDRO. The administrator will also determine in the evaluation period any amounts that are to be paid to the alternate payee. Finally, you and your alternate payee are to be notified about the validity of QDRO.About the Author: This article is an exclusive work of the Editorial team of <a rel="nofollow" href=http://www.articleseen.com>ArticleSeen.com</a>. Feel free to republish this free article elsewhere, provided a link back to this source. To announce the updates in your site by distributing press releases, visit <a rel="nofollow" href=http://www.prbd.net>PRBD.net</a> and get more coverage by using the SEO services of <a rel="nofollow" href=http://www.submitinme.com>Submitinme.com</a> Article Source: <a href='http://www.articleseen.com/Article_Divorce-and-Its-Impact-on-Your-401K-Income_39497.aspx'> http://www.articleseen.com/Article_Divorce and Its Impact on Your 401K Income_39497.aspx</a>

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This article is an exclusive work of the Editorial team of ArticleSeen.com. Feel free to republish this free article elsewhere, provided a link back to this source. To announce the updates in your site by distributing press releases, visit PRBD.net and get more coverage by using the SEO services of Submitinme.com

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