Is it possible to reverse an IRA? I received a QDRO and owe money to my ex-husband. Is it possible to reverse the QDRO, which was put into a CD Traditional IRA account, without incurring any type of penalty?

Because a qualified domestic relations order (QDRO) is a court order, it cannot be reversed once it is received and processed by the retirement plan. If the instructions to reverse the QDRO were issued by the court, as an amendment to the original QDRO, the administrator of the retirement plan would need to review the new instructions and determine whether they could be followed.
If you owe your husband money, you may want to consider alternate sources (instead of your retirement plan) of payment. Funds paid to anyone from your retirement plan will be considered a distribution to you (see exception below). The distribution will be treated as ordinary income, which will be subject to income tax and, if you are under age 59 ½, an additional 10% early-distribution penalty. In addition, because the assets are being held in a certificate of deposit (CD), the financial institution may assess an early-withdrawal penalty, if the withdrawal occurs before the maturity date. Financial institutions are required to allow you a certain period within which you can rescind the CD without penalty. Check with your financial institution to determine whether this period has expired.
Exception
If the funds are distributed from your IRA to your husband as a result of a court-approved divorce decree, the amount will be treated as a distribution to your husband (instead of you), and he will be responsible for paying any tax and penalty, unless he rolls or transfers the amount to an IRA of his own.
Note: Generally, the term QDRO is used for qualified plans, and divorce decree is used for IRAs. Some judges use the terms interchangeably.

This question was answered by Denise Appleby
(Contact Denise)


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