At 63, She Will Receive Half of His $600,000 401(k) in the Divorce. Rolling It Over Costs Nothing. Taking $60,000 of It for the Lawyer Will Set Her First Medicare Premium at 65

Consider a hypothetical 63-year-old woman completing her divorce this year. She will receive $300,000, half of her husband’s $600,000 401(k). If that money goes straight into her own IRA, she owes no tax on it. If she pulls out $60,000 to pay her divorce attorney, she owes tax on that amount. That one check also helps set the Medicare premium she pays in the year she turns 65.

How much this matters comes down to her other income. The Centers for Medicare & Medicaid Services (CMS) says income-related surcharges reach roughly 8% of Part B enrollees. If her pension, wages and investment income sit so far below the first threshold that a $60,000 withdrawal can’t reach it, she can stop worrying. If her other income runs near $70,000, she is right in the danger zone. Every figure below uses CMS’s 2026 plan-year rules.

Transfer and Withdrawal Follow Different Tax Rules

A qualified domestic relations order, or QDRO, is a court order. It directs a retirement plan to pay part of a worker’s benefits to a spouse or former spouse. Plans generally can’t assign benefits to anyone else, and the QDRO is the legal exception that allows the plan pay her directly.

Once the plan approves the order, she decides how to take her share. A direct rollover into a traditional IRA keeps the money tax-deferred. Any part she keeps as cash is taxable in the year you receive it. QDRO payouts aren’t subject to the 10% early-withdrawal penalty. But the plan generally withholds 20% of an eligible cash distribution, leaving her with $48,000 from a $60,000 withdrawal before any additional taxes.

Her Two-Year Medicare Clock Starts in 2026

Medicare’s income-related monthly adjustment amount (IRMAA) is generally based on tax information from two years earlier. The income she reports for 2026 sets her premiums for 2028, the year she turns 65 and enrolls. The surcharge calculation uses modified adjusted gross income (MAGI): adjusted gross income plus tax-exempt interest. That means municipal bond interest counts too.

Assuming she files single and has $70,000 in other MAGI, the $60,000 withdrawal raises her income to $130,000. CMS hasn’t published 2028 brackets yet. Under 2026 rules, a single filer with MAGI over $109,000 and up to $137,000 lands in the first surcharge level.

The first level adds $1,148.40 a year in combined Part B and Part D surcharges, one of several IRMAA traps we mapped in a free Medicare guide. The bigger danger is grossing up. If she withdraws $75,000 to receive $60,000 after withholding, she reaches the second level, with $2,884.80 in annual surcharges at 2026 rates. To stay at or below the first threshold, she can take out no more than $39,000.

Filing status adds a second trap. If her divorce isn’t final by December 31, she’s generally still considered married for 2026 tax purposes. Married people who lived together at any point in the year and file separately face higher brackets: MAGI over $109,000 jumps her straight to $649.20 a month for Part B.

Paying the Lawyer Does Not Shield the Income

Divorce legal fees are personal expenses, and the tax code allows no deduction for personal, living, or family expenses. All $60,000 counts toward MAGI, no matter what she spends it on.

Form SSA-44 offers narrow relief. SSA lists divorce as a life-changing event, and the form asks SSA to use a more recent, lower year of income when that event reduced your household income. That helps if her 2026 joint return included her ex’s paycheck and the divorce then cut her household income. A withdrawal she chose to take doesn’t qualify, because it raised her income.

Three Steps Before Taking Cash

1. Have the QDRO reviewed by the plan administrator before finalizing the settlement. Confirm that the plan permits part of her share to be rolled over and part paid in cash.
2. Split the cash across two tax years. Taking $30,000 in each year would keep her MAGI at $100,000 annually, assuming her other income stays at $70,000. That’s below the 2026 threshold. Roll the rest directly into an IRA, then take the January portion from the IRA. At 63, she owes no early-withdrawal penalty on it. Her 2027 income sets her 2029 premiums, so check that year’s brackets when CMS publishes them.
3. Pay legal bills with money she has already paid tax on. In the settlement, she can take a larger piece of the 401(k) in exchange for her ex keeping more of the cash, brokerage or home equity. Then she covers the fees from after-tax dollars. She can also ask whether the divorce settlement can require her husband to cover part of her legal fees. If her MAGI will land within $20,000 of a bracket either way, have a fee-only CPA project her 2026 return before December’s withdrawal.

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