When getting divorced in Texas, parents who are ordered to pay child support as part of their divorce settlement may often wonder how they will be able to manage such payments. The financial impact of a divorce and the increased cost of living alone versus with someone else can take a bit out of a person’s income and even savings. When considering different options, a retirement account may be one option.
However, before jumping in and blindly taking money out of a 401K, some proper steps must be taken in order to avoid negative penalties. As the Internal Revenue Service explains, 401K account distributions are generally only allowed by the person who owns the plan and even then only when that person meets retirement criteria. The approval and filing of a qualified domestic relations order may allow for others to receive money from an account for specific domestic purposes.
Paying spousal support or even satisfying a property division settlement are some uses of 401K funds with a QDRO. In addition, a QDRO can be used to allow these funds to be accessed to satisfy a child support order. This may help the plan owner to avoid paying early withdrawal fees that could otherwise be incurred.
The U.S. Department of Labor adds that if money is to be paid to a minor, a qualified domestic relations ordermay allow it to be paid directly to a legal representatitve such as a guardian or even a trustee. The plan owner will still remain responsible for taxes on money taken from a 401K for child support purposes.