Buying years-of-service credit is expensive. Tapping into a 401(k) early can be costly. Aside from owing income taxes on that money, you also have the penalty of accessing your funds early.
An in-marriage QDRO is a cheaper alternative that may allow you to access and use your 401(k) money early.
Standard QDROs
Qualified Domestic Relations Orders or QDROs are orders the court issued that allow you to retitle your retirement money in your spouse’s name. Typically, courts use these in divorces to equalize retirement plans among spouses.
In-marriage QDROs
In-marriage QDROs are a court order to divide the assets into separate property when you do not intend to divorce. When you marry, you own marital property, acquired during the marriage, and separate property, which stays with one spouse. An example of that is inheritance money that goes to one spouse.
While in-marriage QDROs are rare, they can make sense when one spouse holds all the assets and wants to move some to the other spouse’s name, you want access to inaccessible funds, you are still working but want access to your retirement accounts or you want to exit an insufficient pension.
QDROs and property status
In-marriage QDROs make the funds withdrawn separate property. The order stands, and the account where the funds come from is no longer marital property. Therefore, you must trust that your spouse will not take the money and file for divorce.
Sometimes, making early withdrawals from your 401(k) is the right option. However, an in-marriage QDRO can help you do this without penalty fees and income tax. If you wish to receive 401(k) money before you retire and do not want these fees, consider using a QDRO to transfer the funds to your spouse to use them together.