Top Frequently Asked Questions
about 401(k) Plans
I am going through a divorce and my spouse
has a 401(k). How can I make sure that I get my fair share and will
I have to pay tax on this?
- The 401(k) should be split between the
two through a valid qualified domestic relations order (QDRO) document.
A QDRO is a court order that allows a part of your spouse’s
401(k) money to be given to you. If this document is made properly,
neither spouse will have to pay a 10% early withdrawal penalty,
even if both of you are 59 and ½ years of age or less.
- What options do you have if you do get
money from your spouse? You can either leave the money in the 401(k)
account or in a separate account managed by you. You could also
rollover to an IRA and manage the money yourself or in to another
employer sponsored retirement plan. Any of these options will keep
the money tax-deferred until withdrawal. What you intend to do with
the money must be stated in the QDRO
document. Also, you should always hire a divorce attorney to file
a QDRO document as it can be very tricky. You should also consult
a divorce planner as the long term implications of divorce can be
financially severe if not handled properly.
I haven’t seen my spouse in more than
2 years and have no idea where he/she is. I would like my 401(k)
beneficiary changed to my children instead of my spouse, but I was
told I need my spouse’s approval. Why can’t I name whomever
I want as my beneficiary?
- The 401(k) laws require that you need
to have consent from your spouse in order to name someone else as
your primary beneficiary. This law is in favour of both the man
and the woman in the family. If you do manage to change your beneficiary
from your spouse to your children without the consent of your spouse,
and suppose your employer pays the retirement benefits to your children
upon your death, your spouse could in theory sue your employer.
This is why you were probably told you need your spouse’s
consent before the beneficiary is changed.The best thing is to check
with your employer if they require your spouse’s consent.
My husband and I are getting divorced and
he wants half of my 401(k) account. As if this isn’t bad enough,
I do not want his girlfriend to get any of the money after he dies.
Can I get this money to go to my children instead?
- Legally, your spouse has a right to claim
a portion of your 401(k), however the exact specifics should be
stated in the divorce agreement. If your husband agrees, you could
have the right to appoint who gets to keep the money in the event
of his death. However, this is only possible if the money stays
in the 401(k) account and does not get withdrawn. If it goes get
withdrawn by your husband, then you will have no idea where the
money is kept, and if it is mixed with other money of your spouse.
I was recently given half of my ex-spouse’s
401(k) money. When do I get this money and will I have to pay tax
- The divorce agreement should state when
you can take the money out of the plan. The agreement however may
not let you take your share until your spouse takes his or her share.
If this point is not mentioned in the divorce agreement, then you
can take the benefit on the earliest retirement date provided under
your ex-spouse’s plan. You can obtain this date from your
ex-spouse’s employer and yes you will be responsible for paying
taxes on it if you withdraw the money from the 401(k) account. However,
if you roll it over to an IRA within 60 days, you can defer all