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A QDRO to cash out a 401k?
Has anyone ever used a Qualified Domestic Relations Order to pull all retirement accounts without penalties?
From my understanding, Its what a judge uses to separate qualified (non-IRA) retirement accounts in a divorce. The judge signs a Domestic Relations Order and then the qualified plan administrator makes it Qualified (that is, it meets ERISA standards to be a QDRO).
There is nothing in the IRS regulations or the DOL rules (who administer ERISA) that mandate QDROs are only for divorce. In fact, they can be used for spouses in addition to former spouses. This is not a loophole, It is a specified portion of the law.
From the DOL Website, we read that a “domestic relations order” includes the approval of a property settlement. This is made under state domestic relations law (including community property law).
Translating lawyer-to-English, this means that the state's family law regulations MAY allow transfer of property from one spouse to another as a marital property right. Another way to say it: if I have a 401k, state law may permit me to get a domestic relations order from a judge giving my spouse the right to withdrawal part of the money. Since the withdrawal is part of a QDRO, by definition it comes out penalty free. In addition, my spouse can roll it over to a spousal IRA and treat it as his or her own.
Couldn't this is be used to fund a real estate investment using my 401k through my spouse without pentalties?