A QDRO is a Court Order that details how monies from a qualified retirement plan are transferred from one spouse to another. Once the Court and Plan Administrator approve the QDRO, the Plan Administrator will send the Alternate Payee (AP) a form asking the AP where he or she wants their money deposited or what form they want to receive it.
The AP can fill out the form or take it to a Financial Planner or broker. The form has several options: (1) Put the funds into the AP’s existing IRA; (2) The AP can set up a new IRA in which to deposit the funds; (3) AP can set up their own 401K to deposit the funds; OR (4) An interesting option is to request the funds in cash because the IRS has a special rule that allows the AP to receive the cash without having to pay the normal 10% penalty. Instead, the AP only pays income taxes at their taxable rate. This is a little known benefit, and it is one divorcing parties should consider if they need cash now. However, if the AP does not need cash, the AP should put the money in another retirement plan, and let it grow.