Episode 3 of 6
The QDRO Split
Dana's divorce decree awards her $140k from her ex-husband's 401(k) via a Qualified Domestic Relations Order. She must decide: roll it into an IRA, leave it in the plan, or take a partial distribution to cover legal fees. The tax consequences differ wildly.
Key Insight
Taking a $25k distribution from the QDRO to cover legal fees triggers $6,250 in federal taxes at the 25% bracket. Rolling the full $140k into a Traditional IRA and paying legal fees from savings preserves $41,200 in additional compounding over 20 years.
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