At 63, She Could Split a $600,000 401(k) in Divorce. Rolling Over Her Share Costs Nothing, but Withdrawing $60,000 for Legal Fees Could Raise Medicare Premiums at 65

Quick Read

• Putting a QDRO share into an IRA creates no tax bill, but taking cash out is fully taxable in the year it is received, and legal fees do not create a deduction.

• With $70,000 in other income, a $60,000 withdrawal lifts MAGI to $130,000 and can trigger Medicare IRMAA surcharges of about $1,148 a year beginning at 65.

• Spreading the cash withdrawal across two tax years can keep annual MAGI at $100,000 and avoid the surcharge brackets while still providing money for attorney costs.

Imagine a 63-year-old woman finalizing a divorce. She is set to receive $300,000, which is half of her spouse's $600,000 401(k). If the money is moved directly into her own IRA, there is no tax due. If she takes $60,000 in cash to cover divorce attorney bills, that amount becomes taxable. The decision can also affect the Medicare premium she pays when she turns 65.

How significant the impact is depends on her other income. The Centers for Medicare & Medicaid Services says income-based surcharges affect roughly 8% of Part B enrollees. If her pension, wages and investment income are well below the first threshold, a $60,000 withdrawal may not matter. But if her other income is around $70,000, she is close to the danger zone. All figures below are based on CMS's 2026 plan-year rules.

Transfers and Withdrawals Are Taxed Differently

A qualified domestic relations order, or QDRO, is a court order that tells a retirement plan to pay part of a worker's benefits to a spouse or former spouse. Retirement plans usually cannot assign benefits to anyone else, and the QDRO is the legal exception that allows the plan to pay her directly.

Once the plan accepts the order, she must decide how to take her share. A direct rollover into a traditional IRA keeps the money tax-deferred. Any amount taken as cash is taxed in the year it is received. QDRO payouts are not subject to the 10% early-withdrawal penalty. However, the plan generally withholds 20% of an eligible cash distribution, so a $60,000 withdrawal would leave her with $48,000 before any additional tax is owed.

Her Medicare Premium Clock Starts Two Years Earlier

Medicare's income-related monthly adjustment amount, or IRMAA, is usually based on tax data from two years earlier. Income reported for 2026 sets premiums for 2028, the year she turns 65 and enrolls. The surcharge is calculated using modified adjusted gross income, or MAGI, which equals adjusted gross income plus tax-exempt interest. That means municipal bond interest is included too.

If she files as a single taxpayer and already has $70,000 in other MAGI, the $60,000 withdrawal would bring her total to $130,000. CMS has not yet released 2028 brackets. Under 2026 rules, a single filer with MAGI above $109,000 and up to $137,000 falls into the first surcharge tier.

The first tier adds $1,148.40 a year in combined Part B and Part D surcharges. A larger risk is grossing up the withdrawal to cover withholding. If she takes out $75,000 in order to end up with $60,000 after withholding, she reaches the second tier, which would mean $2,884.80 in annual surcharges at 2026 rates. To remain at or below the first threshold, she would need to withdraw no more than $39,000.

Filing status creates another trap. If the divorce is not final by the end of the year, she is generally still treated as married for tax purposes. Married people who lived together at any point during the year and file separately face steeper brackets: MAGI above $109,000 would push her immediately to a Part B premium of $649.20 a month.

Attorney Payments Do Not Reduce the Tax Hit

Divorce legal fees are personal expenses, and the tax code does not allow a deduction for personal, living, or family costs. The full $60,000 counts toward MAGI, regardless of how the money is spent.

Form SSA-44 may provide limited relief. The Social Security Administration lists divorce as a life-changing event, and the form allows SSA to use a more recent and lower income year when that event reduced household income. That could help if her joint return included her ex-spouse's earnings and the divorce later cut household income. But a withdrawal she chose to take would not qualify, because it increased her income.

Three Things to Check Before Taking Cash