Understanding Your Rights To Your Spouse's 401(K) Loan

While your spouse does not have equal rights to your 401(k) account while you are married, they may be able to claim funds from it if you get divorced. If you fail to pay court-ordered spousal maintenance or child support, the court can issue a QDRO that requires your plan administrator to distribute the money you owe directly from your 401(k). Additionally, if you live in a community property state, your spouse may own half of what you have saved in your 401(k) account. In terms of loans, spousal consent may be required for a 401(k) loan, but this is dependent on the specific plan.

Characteristics and Values of Spousal Rights to a 401(k) Loan

Spousal consent for beneficiary changes

Whether spousal consent is required for a 401(k) loan depends on the retirement plan. While spousal consent is generally not required for 401(k) loans, some plans may require it. The Retirement Equity Act (REA) of 1984 mandates that spousal consent is necessary when a participant requests a hardship withdrawal or in-service withdrawal. Additionally, if a married participant wishes to designate a non-spouse primary beneficiary, spousal consent is typically required. This requirement also applies if the participant wants to leave a portion of their account to someone other than their spouse.

Spousal consent is essential to protect the spouse from unknowingly being removed as the primary beneficiary. It is a safeguard to ensure the spouse's interests, as they are usually the default beneficiary for a married participant. If a plan includes provisions that make a survivor annuity the default form of participant benefit payment, spousal consent may be required. However, it's important to note that this requirement may vary depending on the state of residence. If you reside in a "community property state," spousal consent is necessary to designate any primary beneficiary other than your spouse due to state property law. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

It's worth noting that some plans may not require spousal consent for a 401(k) loan. If a plan does not offer annuity distribution options and is not subject to survivor annuity requirements, spousal consent is typically not needed for distributions or loans. Additionally, certain deferred annuity contracts with lifetime income options can be used without triggering spousal consent requirements.

The requirement for spousal consent can vary depending on the specific features of an individual's plan. While some plans may require spousal consent for every instance of a beneficiary change, others may not. It is recommended to review the specific rules and requirements of your plan and consult with a financial advisor or estate attorney to understand your options and obligations regarding spousal consent for beneficiary changes.

When spousal consent is required, it must be provided in writing and notarized. Electronic spousal consent is not commonly permitted, as notarization is typically done in person. Obtaining spousal consent is crucial to ensure compliance with applicable laws and to protect the rights and interests of both spouses.

Spousal consent for hardship withdrawals

Spousal consent is generally required for hardship withdrawals. However, this depends on the type of retirement plan and whether it is subject to the Retirement Equity Act (REA).

If a plan is subject to the REA, spousal consent is required for hardship withdrawals and in-service withdrawals. The REA, enacted in 1984, requires that certain qualified retirement plans provide distributions in the form of a Qualified Preretirement Survivor Annuity (QPSA) or a Qualified Joint and Survivor Annuity (QJSA) to protect long-term income streams for spouses of participants.

If a plan is designed with an REA safe harbor feature, spousal consent is not required for hardship withdrawals. Direct IRRs (in-plan Roth rollovers) do not generally require spousal consent, as they are not considered actual distributions from the plan. However, spousal consent is required for indirect IRRs, as they are considered actual distributions.

Some 401(k) plans may require spousal consent for hardship withdrawals, while others may not. If a 401(k) plan allows loans, you can borrow against your retirement savings to meet urgent financial needs, such as medical bills, college expenses, or a down payment for your primary residence. If your spouse refuses to sign the consent form, the loan request may be denied or delayed.

It is important to note that spousal consent requirements differ between retirement plans and IRAs. IRAs do not need to abide by the same spousal consent requirements as qualified retirement plans because they are not subject to the Employee Retirement Income Security Act (ERISA) or the REA legislation.

Spousal rights to 401(k) after divorce

If you are going through a divorce, you could lose all or part of your 401(k) account or gain all or part of your ex-spouse's account. The terms of that arrangement will typically be spelled out in a qualified domestic relations order (QDRO). A divorce is also one of the rare times that allows you early access to your 401(k) without a tax penalty if your spouse is awarded part of your account.

Dividing retirement accounts during divorce is tricky because investment accounts are tied to the stock market, so changes in the stock market directly affect your account's value. In addition, the state where you live will come into play, especially if you leave it to a judge to decide how to split up your assets. In a community property state, the court will split your marital assets 50/50. However, the money you contributed to your account before you were married isn't considered a marital asset.

If your spouse agrees to sign the waiver, which should be provided by the firm that administers the 401(k) plan, a plan representative or a notary public must act as a witness. A prenuptial agreement can't take the place of a waiver; the law says the spouse (not the soon-to-be spouse) must sign. A spouse who does sign a waiver can withdraw that consent if the other spouse later names a different beneficiary unless the signing spouse expressly gave up that right.

If you name your spouse as the beneficiary of a 401(k) plan and later divorce, your ex-spouse will inherit, even if your state has a law that automatically revokes an ex-spouse's right to inherit. There are a few exceptions to this rule: your spouse does not have any right to money you contributed before you were married or money that you alone inherited or were given. And the money you earned is yours if you and your spouse signed a valid agreement to keep all your property separate.

If the money in your retirement account is community property and you want to name someone other than your spouse as the beneficiary, get your spouse's consent in writing. Some retirement plans won't let you name someone else without this consent. If your spouse doesn't consent, the beneficiary you name will be entitled to only half of what's in the retirement account at your death.

Spousal consent for in-service cash distributions

Whether or not spousal consent is required for a 401(k) loan depends on the specific plan and the state in which the married couple resides.

The Retirement Equity Act (REA) of 1984 requires plan participants to obtain spousal consent when requesting a distribution in a form other than the Qualified Joint and Survivor Annuity (QJSA). Therefore, spousal consent is required when a participant requests a hardship withdrawal or in-service cash distribution. However, if the plan includes a safe harbor feature, spousal consent may not be required.

Some 401(k) plans may require married employees to obtain spousal consent when taking a 401(k) loan, and this will typically be in the form of a spousal consent form as part of the loan application documentation. However, spousal consent is not always mandatory, and some plans may approve a loan without it.

If a plan does not offer participants any life annuity distribution option and is not the recipient of funds from a plan that was subject to the survivor annuity requirements, the plan does not have to obtain spousal consent before making distributions to plan participants.

For plans that offer in-plan Roth rollovers (IRRs), it's important to note that direct IRRs generally do not require spousal consent, as they are not considered actual distributions from the plan. On the other hand, indirect IRRs are considered actual distributions, so the REA's spousal consent rules apply.

In addition, spousal consent is not required when taking a distribution from an IRA, but obtaining spousal consent for IRA beneficiary elections becomes an issue when community property rules apply. These rules vary from state to state but generally apply to married couples who share ownership of income or property acquired while living in a community property state.

Spousal consent for plan loans

Whether spousal consent is required for a 401(k) loan depends on the plan. Some 401(k) plans may require married employees to get spousal consent when taking a 401(k) loan. However, spousal consent is not mandatory, and some plans may not require spousal consent to approve a loan.

The Retirement Equity Act (REA) of 1984 requires plan participants to obtain spousal consent when requesting a distribution in a form other than the Qualified Joint and Survivor Annuity (QJSA). Therefore, spousal consent is required when a participant requests a hardship withdrawal or in-service withdrawal. If the plan includes a safe harbor feature, spousal consent may not be required.

Spousal consent is also required if a married participant designates a non-spouse primary beneficiary and may be necessary if a 401(k) plan offers one or more annuity forms of distribution. Generally, tax-qualified retirement plans are required to provide distributions to participants in the form of a QJSA and a minimum preretirement death benefit known as a Qualified Preretirement Survivor Annuity (QPSA).

The spousal consent form must be signed and notarized before the plan grants the loan. If the spouse does not sign the spousal consent form, the loan may be denied or delayed until the form is properly signed and delivered.

Plans may provide for a spousal consent period no longer than 180 days prior to the date a loan is secured by a participant's accrued benefits. Both a 180-day period and a 90-day period for obtaining spousal consent are allowable plan provisions that result in compliance with IRC Section 417(a)(4).

Frequently asked questions