How can I use QDRO money without penalty?

Additional information: I’m 40, getting divorced & expect $50K from QDRO. I’m so in debt. How can I use QDRO money without penalty?

Answer: There is a little known exception to the requirement that an early distribution from a retirement plan causes one to pay a 10% penalty on the money withdrawn.  If this QDR is on a 401K Plan. 403B or KEOGH profit sharing or money purchase pension plan the IRS offers an exception to the early distribution 10% penalty. There is an option for the alternate payee (you) to withdraw the funds and only pay the tax and the penalty would be waived. When the QDRO is implemented, the 1099-R from the financial institution must be coded with a “2” – early distribution, exception applies. If it is not coded properly this incorrect election can be corrected after the fact. Please consult with a financial advisor or accountant before making this very important decision as the income received from this withdrawal may put you into a higher tax bracket and cause you to pay additional taxes. A financial professional will be able to advise your properly based on your entire financial situation and may have other more appropriate suggestions than early withdrawal from a retirement plan.