How Does a Court Order Affect “401k” Federal Savings Plan Accounts

By July 30, 2017Benefits, Retirement, TSP
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A court decree of divorce, annulment or legal separation can make an award from a “401k” Federal Savings Plan account to someone other than the participant, such as a spouse or a former spouse.
The “401k” Federal Savings Plan will honor such orders if they are issued in connection with such an action and they comply with the board’s regulations. It also will honor preliminary court orders for the purposes of freezing a participant’s account as well as amendatory court orders issued after such a decree.
When the “401k” Federal Savings Plan receives a court order, the account of the participant is frozen, meaning that the participant is not allowed to withdraw the account, except to meet certain IRS mandatory distributions, or receive a loan from the account. All other account activity is permitted, however. If the “401k” Federal Savings Plan determines that the court order is qualifying, it issues a statement regarding the effect that compliance will have on the account and a description of the method by which any entitlement was calculated, the results of the calculation and the circumstances under which payment will be made.
The “401k” Federal Savings Plan will make only one disbursement under a court order even if the order on its face requires a series of payments.
After a payment is made, the account will be unfrozen.
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