For a divorcing spouse with minor children, the requirement to make child support payments may be ordered as part of their final divorce settlement.
When a person’s post-divorce income makes it difficult to afford the mandated child support payments, they may look to their retirement savings for help.
401K assets and child support
As explained by the United States Department of Labor, assets held in a 401K are designed to be withdrawn to fund the retirement of the account holder. Any distributions taken from an account for any other purpose may result in the assessment of early withdrawal fees that eat away at a person’s hard-earned retirement savings. This may include money withdrawn from a 401K to satisfy a child support order.
The qualified domestic relations order
Some situations, such as a divorce, may open the door for a person to access 401K funds without paying early withdrawal fees. Avoiding these fees requires the use of a qualified domestic relations order. The QDRO establishes another person as a legal payee on an employer-sponsored retirement account. This alternate payee may be the child or legal dependent of the account holder, thus allowing child support payments to be made directly from the 401K account to the child or dependent. If the child or dependent is a minor, payments may be made to an adult guardian.
Income taxes on QDRO distributions
According to the Internal Revenue Service, funds withdrawn from a retirement account may be subject to income tax assessments if not reinvested into another retirement account. When used to pay child support, the tax responsibility remains with the account holder.
