Typically, only the owner of a 401(k) account can make withdrawals or distributions. Thus, it could be concluded that a spouse could not, even if she is a beneficiary, touch the money in her husband’s or wife’s retirement plan without permission from the account owner. In short, even if they are beneficiaries, spouses cannot make withdrawals without express permission.
However, this is not to say that there are not certain exceptions, even if they are very limited. For example, in a divorce, the husband or wife may be able to access the deposited money as long as they have a court order to support it.
Table of Content
- What is the 401k retirement plan?
- How does a retirement plan work?
- Can my husband or wife take away my 401(k)?
What is the 401k retirement plan?
The 401 (k) account is an individual or employer-matched defined contribution retirement plan that has tax advantages, such as the earnings generated by those contributions will not be taxed until the person makes a withdrawal from the account.
The 401(k) plan is sponsored by the employing company. This account is divided into two main types, which is the traditional 401(k) and the Roth account. In the first, employees can deduct the contributions from their income tax payment and the amount that is taxed will be the withdrawal. In the second, contributions cannot be deducted, but withdrawals are tax-free.
For 2020, the rules of the game for 401(k) accounts and other retirement plans have been relaxed in order to help those affected by the pandemic. If you want to know more about this topic, be sure to see our article “Withdraw the 401(k) without penalty due to Coronavirus, is it possible?”
How does a retirement plan work?
Let’s take a quick look at the basics of the 401(k) retirement plan. First, we should note that the 401(k) is a qualified retirement plan, which means that it is eligible for certain tax benefits. Also, we must remember at this point that contributions to the account are limited, as are withdrawals.
That is why, in the event of an early distribution, the owner must pay 1) the applicable state or federal income taxes, and 2) a fine or penalty of 10% of the amount. In certain cases, it is estimated that non-qualified withdrawals represent the loss of 30% of the amount withdrawn, but there have been scenarios in which this percentage rises to 50%. This will depend on the tax rate you have.
After reaching age 59 1/2, 401(k) account holders can make qualified withdrawals -although it is not recommended- and mandatory distributions would begin at age 72.
Note:The maximum amount an employee can contribute from their salary to their 401(k) account for 2020 is $19,500. If the employee is already 50 years old, she can add an additional $6,500. The combined maximum contributions for this same year, that is, those of the employee and those of the employer, should not exceed $57,000 or $63,500 if the employee has already turned 50.
Can my husband or wife take away my 401(k)?
Depending on the law in your state of residence, your spouse may have rights to your 401(k) account because it would become an asset of the marital partnership. However, this does not necessarily mean that they will be able to withdraw money from the account without your permission. Of course: remember that the court could award a part of the money in the account through a court order.
What is the Conjugal Partnership () in marriage?
Conjugal Partnership is referred as marital partnership is when two people remain in a marriage-like relationship but are not married. Is is also called as marital property, which refers to the set of assets owned by both spouses. For example, if you opened your 401(k) account after marriage, the balance in that account could qualify as marital property. However, this is not the case in all states. In addition, there could be some elements that prevent the account from being included in marital property, such as a separate estate, for example.
Now, even if you opened your 401(k) account before marriage — and as long as your state allows it — funds you accumulated in the account after the date of marriage could become marital property. But remember: these kinds of assumptions will only become a reality if the laws of your state allow it.
Can my spouse withdraw money from my 401(k)?
Even if your 401(k) account qualifies as marital property, your spouse won’t have the same rights to the account that you do, at least not while you’re married. Although your plan may allow you to make a withdrawal without your spouse’s knowledge, your spouse may not make withdrawals or borrow from the account without your express, written consent.
On the other hand, you should also know that even if a part of the balance is owned by your spouse and they have that written permission, some of the plan sponsors will not even allow you to take money out of the account without first consulting you.
What happens to my 401(k) if I get divorced?
If you divorce your spouse in the future and that 401(k) account or part of it is part of the community of marriage, most states may give you a portion of the account. In that case, the court will order the plan administrator to distribute your ex-spouse’s share directly, or it may also award your ex-spouse a comparable marital asset, that is, a request that you pay that portion of the money out of your own pocket. thus giving you the opportunity to keep your account intact.
Another of the scenarios that can happen is that the money is divided by judicial agreement. If the court chooses to force a distribution of the account, it will issue a court order allowing the distribution to take place without incurring an early withdrawal penalty.
Past-due support and 401(k) accounts
In some cases, a former spouse could claim the funds in your 401(k) account. An example? If you have not paid your support or that of your children. If your ex goes to court and gets a court order, he could use the QDRO to order the plan administrator to distribute the money you owe directly from the 401(k) account.
Note: If the payment is for child support, you will also have to pay taxes on the withdrawal. Otherwise, your spouse will be responsible for paying the taxes.