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February 28, 2017

Spousal Protection for Retirement Assets

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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

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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