Applications of an In Marriage QDRO®:
The In Marriage QDRO® allows your clients to personalize financial and estate planning goals without the delay of retirement or the penalty of early access.
The ability to gain unfettered access to one’s 401(k) or pension account prior to retirement has a host of beneficial possibilities. A few of the more popular applications of this new tool include delaying required minimum distributions, creating income streams, and contemplating long term care expenses.
Delay Required Minimum Distribution
A participant spouse may wish to roll retirement funds to his or her younger spouse, thereby delaying the implementation of required minimum distributions (RMDs). The benefits of this strategy must be known and discussed by the financial advisor years in advance of age 70. By the time a person is facing the mandatory distribution of RMDs, he or she is often already retired and has already rolled their 401(k) and/or pension into an IRA for managed diversification by a professional. This is too late, because a direct IRA distribution transfer to a spousal IRA is not allowed. The target audience for this strategy is 60- to 64-year-old participants who are set to retire within 1-2 years. All of their retirement funds are still in qualified accounts (401(k)s, pension profit sharing accounts) and are eligible for an In Marriage QDRO® transfer. In many cases, this participant intends to roll their money into a privately managed IRA upon retirement anyway. Utilizing the IMQ® strategy and rolling the funds to the younger spouse, they can obtain the benefits of a financial advisor a few years earlier and can delay the RMDs for several years, adding multiple years of nontaxed growth.
Create a Guaranteed Income Stream
Guaranteed income through an index or variable annuity can be very beneficial in certain circumstances. Like the RMD situation described above, many soon-to-be retirees who desire an annuity to be part of their portfolio worry about timing their retirement. What if the market is on a downturn when they retire, and they cannot buy the same size annuity as originally desired? The application of an In Marriage QDRO® eliminates the pressure of this timing and puts control and planning back into the hands of the couple’s financial advisor. The advisor can now access the 401(k) at any time and convert it into an IRA (in the spouse’s name) often at a cheaper price, depending on the ages of the respective parties.
Prepare for Long-Term Care Expenses
A couple facing the troubling situation of the unexpected long-term care cost of a nursing home may be able to legally transfer account ownership out of his or her name and into the name of the spouse remaining at home. This may assist in qualifying for certain Medicaid benefits depending on state law. For example, assume that a 78-year-old spouse going into the nursing home has a $4,000 per month pension. Depending on state law, an estate planning attorney could prepare a certain type of trust to act as a work-around, which may qualify the pensioner for benefits but doesn’t truly protect the pension. A properly crafted In Marriage QDRO® can potentially protect 100 percent of the pension by transferring the benefit to the spouse to utilize the income for his or her benefit, while still qualifying the institutionalized spouse for various governmental benefits.
- Engage in private placement of securities
- Purchase alternative financial investments (e.g., debt or digital currency)
- Diversity investments ahead of stock market fluctuations
- Create and fund a ROTH IRA
- Utilize existing 401(k) funds to create a self directed IRA, which may be used for the purchase of property and/or to create a business
- Avoid normal In Service Distribution restrictions by clinically removing after tax funds
- Roll funds to older spouse to allow for earlier access or, if appropriate, to create supplemental retirement income
- Transfer funds away from underfunded or frozen pensions
- Purchase “air time” for early retirement with full benefits
- Access cash during a tax year with large tax write offs (offset income taxation)
- Liquidate to purchase property with after tax funds
- Pay for education expenses without taking on high interest education loans
- Initiate advance tax planning for young, high earners
- For spouses having a prenuptial agreement, roll funds to less wealthy spouse for tax and/or estate planning purposes
- Establish a property settlement for spouses who are separated, but who do not wish to divorce
The Benefits of an In Marriage QDRO®:
In addition to promoting more robust conversations between professionals and their clients, the In Marriage QDRO® can eliminate penalties. As detailed in the chart below, a client may liquidate retirement funds prior to age 59.5 without incurring a ten percent penalty.
