Congress could soon change how couples access their retirement accounts. A pair of Democratic bills recently introduced in the House and Senate require the consent of both spouses before either can make any withdrawal from 401(k) accounts. The bills, sponsored by Rep. Lauren Underwood, D-Illinois, and Sen. Tammy Baldwin, D-Wisconsin, seek to amend Employee Retirement Income Guarantee Act (ERISA) and maybe change how some married couples access their 401(k) money.
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current state of law
Currently, the husband’s authority over retirement accounts varies widely. Some accounts, like many annuitiesThey can have important approval rules when it comes to making any changes to the account or its terms. This is generally because each section of annuities “belongs” to either the retiree or his or her spouse, so unilateral changes mean taking over someone else’s property rights.
Others, most notably many 401(k) plans, work similarly to a shared private portfolio. The spouses can withdraw money unilaterally, take out loans and make other changes to the accounts at will. However, there are some limits around this power — for example, a spouse can’t unilaterally change 401(k) beneficiaries. Meanwhile, defined benefit contribution plans are treated as fully shared assets.
“Despite their rise in popularity, 401(k) and other defined contribution plans offer little, if any, spousal protection… Aside from primary residence, retirement accounts are often the biggest assets for spouses, making them potential targets. In cases of separation and divorce, the current law allows one of the spouses to withdraw the entire amount without the consent or knowledge of the other spouse, and this could be devastating for the future financial resources of the family.”
The proposed legislation would update the ERISA statute that governs most tax benefits retirement accounts. The new rules require spouses’ consent before withdrawals or other distributions can be made from a defined contribution plan, such as a 401(k).
In practice, this means that both spouses will need to sign the relevant forms before either spouse can take money from a 401(k) or related plan.
The American Retirement Association (ARA), which includes 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 security of a spouse’s retirement, more research needs to be done on this approach to determine whether it does more harm than good,” Andrew Remo, director of federal and state legislative affairs, told ARA in a statement.
Couples with soon-to-be 401(k) accounts may need each other’s permission before making any withdrawals from their wallets. loans and make other changes to their accounts as desired.
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