GA divorce, spouse incarcerated. He finally signed the settlement, including child support. He agreed to turn over 100% of 401k and retirement pension. Can the 401k be categorized as child support? Will this allow a withdrawal with zero penalties or taxes?

Your attorney needs to file a QDRO against his pension and 401(k) balance. Qualified domestic relations order - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/QDRO)

However, this does not affect the taxability of any distribution from the 401(k). It may, however eliminate the 10% penalty.

I understand the QDRO is already in process. But now they are mentioning the possibility that they can categorize the 401k as child support and eliminate all taxes on the withdrawal. Is this true? Or would the taxes be the same?

Somebody has to pay income tax on the withdrawals. If the QDRO specifies that the money is to be classifed as child support payments to you, then the distributions are considered to be taken by your ex and subsequently transferred to you. He will owe income tax on the distribution, and the subsequent transfer to you is not taxed (since child support payments are not taxable to the payee). Remember that the government hasn't collected any income tax on this money yet, since it was pre-tax money that your ex put into the plan and all earnings to date have been tax-deffered. There's no free lunch here - the IRS has to get its cut one way or the other. It's just that in this case your ex will owe the income taxes on the withdrawal from the 401(k), rather than you.

You might find this article of interest: http://www.abanet.org/family/newsletters/2005/OrtizArticle.pdf

Thank you for your assistance