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Spouses May Soon Need to Agree on 401(k) Withdrawals Under This Proposed Law

A senior couple talks about their 401(k) withdrawals and financial plan for retirement.

Congress could soon change how spouses access their retirement accounts. A pair of Democratic bills recently introduced in the House and Senate would require spouses to consent before either one can make any withdrawals from their 401(k) accounts. The bills, sponsored by Rep. Lauren Underwood, D-Illinois, and Sen. Tammy Baldwin, D-Wisconsin, seek to amend the Employee Retirement Income Security Act (ERISA) and potentially change how some married couples access their 401(k) funds.

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The State of Current Law

Currently, spousal authority over retirement accounts ranges widely. Some accounts, like many pensions, can have significant consent rules when it comes to making any changes to the account or its terms. This is generally because each section of a pension “belongs” to either the retiree or their spouse, so unilateral changes would mean seizing someone else’s property rights.

Others, most notably many 401(k) plans, work similarly to a shared private portfolio. Both spouses can unilaterally withdraw money, take loans and make other changes to the accounts at will. However, there are some boundaries around this authority – for example, a spouse cannot unilaterally change the beneficiaries of a 401(k). Defined benefits contribution plans, meanwhile, are broadly treated as fully joint assets.

In 2022, voices in the retirement services community began to call for Congress to reexamine this practice. As SmartAsset wrote at the time:

“Despite their rise in popularity, 401(k) and other defined contribution plans offer little if any spousal protection… Aside from a primary residence, retirement accounts are often the largest asset for married couples, making them potential targets in cases of separation and divorce. Current law permits one spouse to withdraw the entire amount without the other spouse’s consent or knowledge, and that could potentially prove devastating to a family’s future finances.”

Proposed Changes

Two proposed bills have been introduced on Capitol Hill that would require spousal consent for withdrawals from 401(k)s.

The proposed legislation would update the ERISA statute that governs most tax-advantaged retirement accounts. The new rules would require that both spouses consent before taking withdrawals or other distributions from a defined contribution plan, such as a 401(k).

In practice, this means that both spouses would need to sign the related forms before either spouse can take money from a 401(k) or related plan. 

The proposed legislation does not affect IRA plans, which will continue to allow unilateral withdrawals without spousal consent.

The American Retirement Association (ARA), which comprises five different retirement-focused organizations, is taking a wait-and-see approach to the proposed legislation.

“While we support the policy goal behind this proposal, which is to protect the retirement security of a spouse, more research needs to be done on this approach to determine whether it would do greater harm than good,” Andrew Remo, Director of Federal and State Legislative Affairs for the ARA said in a release.

Bottom Line

Spouses who hold 401(k) accounts may soon need permission from each other before they make any withdrawals from their portfolios, under Democratic legislation that’s been proposed in Washington D.C. According to current law, spouses can make withdrawals from 401(k)s, take loans and make other changes to their accounts at will.

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