Alternatively, the Alternate Payee may choose to transfer the awarded funds to another tax deferred account of their choice - for example, to an IRA (Individual Retirement Account). This type of plan generally allows an Alternate Payee to receive an immediate lump sum distribution (or withdrawal) upon approval of a QDRO. If permitted by the terms of the plan, the Alternate Payee may have the opportunity to utilize investment options that are available for other plan participants. Once a QDRO is approved, the Plan Administrator will establish a separate account for the Alternate Payee. With a few exceptions, a QDRO containing a marital coverture formula for division of a defined contribution account will likely be rejected by the appropriate Plan Administrator. Most defined contribution plans do not permit an award to be expressed as 'marital coverture formula', such as: '50% of the amount accrued from the date of marriage to the date of separation or divorce'. In most cases, the Alternate Payee’s portion must be expressed as either a specific dollar amount, or as a percentage of the account.

When dividing a defined contribution plan, the Alternate Payee is typically awarded a portion of the Participant's account balance as of a specific date (the 'Valuation Date' or 'Assignment Date'). A division of this type of account must be done by way of a Qualified Domestic Relations Order (QDRO). Examples of this plan type are Employee Stock Ownership Plan (ESOP), Profit-Sharing Plans, 401(a), Savings Plans and 401(k).

Regular contributions are then made by the Employer, the Participant, or both. Typically, a Company Sponsor (Employer) of this type of plan creates an account for every individual Participant. 401(K) PLAN is a DEFINED CONTRIBUTION PLAN.

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