How to Safeguard Your 401(k) From Being Emptied Without Your Permission

Saving for retirement is one of the most pressing concerns for many Americans, and how to safeguard those funds is an equally important consideration. Private employer-sponsored defined contribution plans have become the primary retirement account vehicle, with more than 90% of eligible workers contributing to a retirement plan this past year.

However, unlike the traditional pension plan, defined contribution plans like your 401(k) don’t offer the same level of protection safeguards — including from your spouse if things in the marriage go south. Senators Patty Murray (D-WA) and Richard Burr (R-NC) have posed the question: retirement accounts are crucial to your future, so can your spouse really take the money without your knowledge?

A financial advisor could help you design a retirement plan that safeguards your assets. Speak to a qualified advisor today.

Senators Call on GAO to Investigate Spousal Protection

Despite their rise in popularity, 401(k) and other defined contribution plans offer little if any spousal protection. Traditional pension plans and the federal government’s Thrift Savings Plan require both spouses’ signatures in order to withdraw or borrow money from those retirement accounts. They also provide for spouses in case of death and divorce, as well as extend those benefits to same-sex married couples.

Senators Murray and Burr have written an open letter to the Government Accountability Office (GAO) requesting an investigation into the need for spousal protection in defined contribution plans. 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.

Steps You Can Take to Safeguard Your Shared Assets

Currently defined contribution plans offer little spousal protection beyond spousal death benefits. In December 2021, a large number of senators headed by Senator Murray wrote the U.S. Treasury urging more retirement plan protection for same-sex married couples, who were denied survivor benefits because they couldn’t legally get married. Now they request extending protection to unsuspecting spouses, who might count on the funds socked away in a 401(k) plan only to find it empty when the household needs it.

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In the case of divorce, 401(k) and other retirements are often considered shared marital assets. Depending on your state, the court may divide those funds 50/50 or according to an equitable share. If you would like to keep your funds separate, it may be prudent for you to consider a pre- or postnuptial agreement.

Sometimes, though, you may need to protect retirement assets from a spouse who has little financial knowledge. In those cases, it may be helpful to speak to a financial advisor or attorney who can best guide you through your options. Until the current law is updated or the government issues guidance that changes plan rules, only qualified distributions, hardship withdrawals and changing the primary beneficiary will require spousal consent.

Bottom Line

Unlike traditional pension plans, private defined contribution plans like your 401(k) don’t require spousal consent for early withdrawals. This may cause issues if one spouse uses the retirement funds without the other’s knowledge or consent. As a result, Senators Murray and Burr have written an open letter for the GAO to investigate whether the government can easily extend existing spousal protection to such plans and help married couples safeguard their assets.

Retirement Planning Tips

• Not sure how to protect your retirement funds from unexpected situations? For a solid, long-term financial plan, consider speaking with a qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Use SmartAsset’s free retirement calculator to get a good first estimate of how much money you’ll need to retire.

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