Some early withdrawal tax exceptions apply to qualified plans other than IRA accounts. Learn about these exemptions below.

A QDRO is a judgment, decree, or order relating to payment of child support, alimony, or marital property rights to a spouse, former spouse, child or other dependent.  The order has to contain certain specific information like the amount of the participant’s benefits to be paid to each alternate payee.

Spouse or former spouse - If a spouse or former spouse receives retirement benefits from a participant’s plan under a QDRO, the former spouse must report the payments just as though he/she were the plan participant. The early distribution penalty does not apply, regardless of the alternate payee’s age. The taxability is computed by allocating the spouse/former spouse a share of the investment in the contract and figuring the taxable portion accordingly. If the recipient spouse rolls over the distribution to an IRA, or there is a direct trustee-to-trustee transfer, the recipient spouse will not be taxed currently on the plan benefits received under the QDRO, but distributions from the IRA before that spouse is age 59½ will be taxed and subject to the 10% penalty unless one of the other exceptions applies.    

The QDRO exception to the 10% penalty does not apply to distributions from IRAs, but Code Sec. 408(d)(6) provides that the transfer of an individual's interest in an IRA to his spouse or former spouse incident to divorce is not a taxable transfer and that the transferred amount is to be treated as the IRA of the transferee spouse. Thus, the tax on early distributions does not apply.

Distributions from a qualified retirement plan after separation from service in or after the year the taxpayer reached age 55 (see below for a special rule for certain public safety employees). Note: Distributions of this type are rarely coded on Form 1099-R as an early distribution.

This exception applies only where the taxpayer separates from employment after reaching age 55. The Tax Court ruled the exception did not apply in the case of a taxpayer who retired from his job when he was age 53 but who waited until after he turned 55 to make a withdrawal from his qualified retirement plan (Williams v. Commissioner, T.C. Summary 2008-53, 5/19/08). A taxpayer must be age 55 or older, and then separate from employment, for an early distribution to be excepted from the 10% penalty.