February 28, 2017

Spousal Protection for Retirement Assets

By Denise Appleby,CISP, CRC, CRPS, CRSP, APA. 

One of the ‘for better’ perks of the ‘til death do us part’ promise made by married couples is the benefit that is received by being married to someone who owns a retirement account. This benefit includes having control over who is named the beneficiary of your spouse’s retirement account, and being able to prevent your spouse from taking non-annuitized distributions without your consent. These benefits are intended to protect the interest of the spouse of the retirement account owner, and availability depends on the type of retirement account.

The following are some of the protections that apply to you, if you are married to someone who owns a retirement account.

You Must be the Beneficiary of Qualified Plans

Generally, the owner of a retirement account is required to complete a beneficiary designation form to indicate who will inherit the account. For qualified plans, which include 401(k) and pension plans, you must be the primary beneficiary of your spouse’s retirement account, unless you provide written permission for someone else to either share that role with you, or assume the role as the sole primary beneficiary. Your written authorization is required to be witnessed by an authorized representative of the qualified plan, or a notary public. If this written authorization is not provided and your spouse names someone other than (or in addition to) you as primary beneficiary, the beneficiary designation is automatically invalidated, leaving you as the primary beneficiary.

Exception: Some qualified plans provide that the couple must be married for at least a year in order for the spouse to be automatically considered the beneficiary of the retirement account. The plan administrator is required to provide an explanation of the rules to the account owner.

Caution: If you got married after your spouse opened his or her retirement account, steps must be taken to update the beneficiary designation form to properly reflect the account owner’s beneficiary preference. If necessary, spousal consent should be obtained after the marriage, as any consent before the marriage might be invalid. Failure to take these steps can result in the assets being inherited by a party other than who the account owner intended.

Spousal Consent On Loans and Distributions From Qualified Plans

If your spouse’s retirement benefits are held under a defined benefit pension plan or a money purchase pension plan (pension plan), distributions cannot be made without your consent. Exceptions apply to distributions that are in the form of qualified joint and survivor annuity (QJSA) payments, or amounts that represent mandatory distribution, such as required minimum distributions (RMD). RMDs are required to begin the later of the year the account owner reaches age 70½, or the year of retirement. Note: Deferring RMDs past age 70½ is permitted only if allowed under the retirement plan.

Under pension plans, spousal consent is also required for any amount of the plan balance to be pledged as security for a loan.

These restrictions help to ensure that you are aware of how much is being withdrawn from the retirement account.

Spousal Beneficiary Waivers for IRAs: Some States

If you live in a community property state, your spouse may be required to obtain your consent in order to name someone other than (or in addition to) you as primary beneficiary of his or her IRA. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington. If you live in Alaska, you and your spouse can have the community property laws apply, by making an election to that effect. Wisconsin is a marital property state, and is subject to similar rules.

Talk to a Professional

The general idea behind these rules is that the retirement savings are for both spouses, regardless of who holds the account. But of course, exceptions apply. Consider too, that this article merely highlight some of the rules. To get more details, including information about how these rules might apply to you and your retirement account,please contact your financial, legal and/or tax professional.

Written By

Retirement Dictionary Staff

Frequently Asked Questions Regarding

The grandchild (son) should take distributions over his mother’s life expectancy. The mother’s life expectancy is determined in the year after the grandfather died, and 1(one) is subtracted for each year that has passed.

A second generation beneficiary’s (or successor beneficiary’s) life expectancy is never used to determine distributions from an inherited retirement account.
The matter of how the account should be titled for a second generation beneficiary (successor beneficiary) is one of those issues which has not yet been addressed. So, I can only give my opinion.
Based on the guidance provided in the instructions for filing IRS Form 1099-R and Form 5498, and IRS Notice 2007-7, the account should be titled “Grandchild beneficiary  of Mother( deceased) IRA”, or any other variation, providing it shows the grandchild is the beneficiary, and the mother is the decedent.
IRS Notice 2007-7 A-13 states that “ The IRA must be established in a manner which identifies it as an IRA with respect to a deceased individual and also identifies the deceased individual and the beneficiary, for example, “Tom Smith as beneficiary of John Smith.” Therefore, since the grandchild is the beneficiary of the mother, the registration should show the mother’s name and the child’s name.
Before notice 2007-7 was issued, I would have been less certain, as the instructions for 1099-R/5498 were not as clear.


No. It is true that the IRS requires the inherited IRA to include the name of the decedent in the registration, to show that the account once belonged to the decedent. This also serves as a reminder to all stakeholders that the account is an inherited IRA, which means it is likely that the account is not eligible to receive a https://www.retirementdictionary.com/conrtibution.htm contribution [other than a https://www.retirementdictionary.com/Direct-rollover.htm direct rollover contribution on behalf of the https://www.retirementdictionary.com/Beneficiary.htm beneficiary of a https://www.retirementdictionary.com/Qualified-Retirement-Plan.htm qualified plan, https://www.retirementdictionary.com/403-b-plan.htm 403(b) account or https://www.retirementdictionary.com/457-plan.htm 457(b) plan]; and it allows the beneficiary to identify the source of each IRA he or she holds for purposes of figuring the taxation of a distribution from the IRA, including exclusion from current year gross income as an https://www.retirementdictionary.com/Eligible-rollover-distribution2.htm eligible rollover distribution. But nowhere does it state that the absence of the decedent’s name will result in the https://www.retirementdictionary.com/Transfer.htm trustee to trustee-transfer being treated as a https://www.retirementdictionary.com/Distribution.htm distribution.

There are other – more important- elements that makes an IRA an ‘inherited IRA’ or ‘beneficiary IRA’.
These include:
• Coding the account as an inherited IRA for tax reporting purposes. This involves hard-coding the account so that all distributions are reported with a Code 4 in box 7 of IRS https://www.retirementdictionary.com/1099-plan.htm Form 1099-R.
• Coding the account so that it cannot receive IRA contributions.

Therefore, the first thing you (or the IRA owner) need to do is check with the custodian to determine if:
• The account was coded as an inherited IRA for tax reporting purposes
• The only assets in the account are the assets from any transfers (from the decedent’s retirement accounts).

If the answer is yes in both cases, then all you need to do at this point is show the custodian proof that the assets were transferred (not distributed) from an IRA ( in the name of the decedent) to that IRA, and instruct them to correct the registration to include the name of the decedent.

If the account was not coded as an inherited IRA, and the only assets are in the account are the assets that transferred from the decedent’s IRA, then you need to:
• Provide the custodian with the supporting documentation to show that the assets were transferred (not distributed) from the decedent’s IRA to that IRA
• If any distributions were already taken from the beneficiary’s IRA that were not coded as a ‘death distribution’, instruct the custodian to issue a corrected 1099-R with the correct coding.
• Instruct the custodian to add the name of the decedent to the account registration and code the account as an inherited IRA.

If the assets were commingled with non-inherited IRA assets, then you have a problem and would need the assistance of a retirement plans expert to determine if and what type of corrective measures can be taken.

No. You cannot rollover or transfer an IRA that you inherited from your uncle to your own IRA, because you are a non-spouse beneficiary. A non-spouse beneficiary is defined as a beneficiary that is not the surviving spouse of the deceased IRA owner. Instead , you may transfer the funds to an Inherited IRA . An Inherited IRA is one that is registered in the names of the decedent and the beneficiary ( in this case, your name and your uncle’s { the decedent} name), using your social security number. An example of a registration that satisfies the IRS requirements is: IRA FBO Jim P, Beneficiary of Tom S (Deceased)”. Any variation of this will work, as long as it is clear who is the beneficiary and who is the decedent. Some financial institutions may shorten ‘beneficiary’ to read ‘bene’, ‘beneficiary of ‘to read ‘B/O’ and/or ‘deceased’ to read ‘decd’.



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