What IRS code allows funds to be withdrawn from a qualified plan by following a QDRO?

The correct choice regarding the IRS code that allows funds to be withdrawn from a qualified plan under a Qualified Domestic Relations Order (QDRO) is related to IRS Code 72(t)(2)(C). This section of the tax code specifically permits penalty-free withdrawals from retirement plans when distributions are made to an alternate payee as designated by a QDRO.

When a divorce settlement involves the division of retirement assets, a QDRO serves as a legal document that instructs a retirement plan to assign a portion of an account holder's benefits to an alternate payee, often a spouse or former spouse. Under IRS Code 72(t)(2)(C), these distributions are not subject to the usual 10% early withdrawal penalty, provided they comply with the stipulations of the QDRO.

This code provides a framework for individuals to access retirement funds early, which may be crucial during divorce proceedings, ensuring that the recipient can utilize the funds without facing additional financial penalties.

In contrast, options related to specific IRS codes such as 401(k), 1041, and 1031 do not specifically reference the procedures or benefits associated with QDROs, making them less relevant in this context.