Spousal Consent Requirements for IRAs

fortpitt in Retirement Planning 7 June, 2024

The spousal consent requirements when making withdrawals or changing beneficiary designations differ depending on the type of retirement plan. The state in which the couple resides may also change the rules. Therefore, it’s essential to learn the general laws and exceptions to make informed decisions.

The guide will teach you when you need spousal consent when dealing with individual retirement accounts (IRAs). We’ll consider the applicable laws in states that require spousal consent for IRA transactions.

What Is Spousal Consent?

Spousal consent is the permission one spouse gives the other to perform an act. In this context, it is the agreement between spouses regarding an action that affects a retirement account. Spousal consent may relate to activities like withdrawals, distributions, or the designation of beneficiaries. Generally, a spouse can consent by completing and signing an administrative form, which a licensed notary must notarize to confirm its authenticity. Alternatively, a plan representative may witness the signing.

Some retirement plans require spousal consent to validate changes or actions. This rule generally applies to qualified retirement plans or defined benefit plans. For example, if you want to change a designated beneficiary on your 401(k) account to someone other than the spouse, your spouse must consent. However, the rules are different when it comes to IRAs.

When Do You Require Spousal Consent?

Certain retirement plans require consent when taking distributions or changing beneficiary designations. Classic examples include defined benefits, money purchase pensions, and target benefit plans. Even so, there are exceptions regarding 401(k) retirement accounts. IRAs are also usually excluded.

For example, a federal court decision from West Virginia assessed the two spousal rules in 2022. In that case, Mr. Gifford was an optician at Walmart and participated in the Walmart 401(k) plan. He was married to Sara Gifford, the sole beneficiary of the plan.

Mr. Gifford requested and received a distribution of the funds in the 401(k) account and deposited it into an IRA. Then, he named his daughter, Emma, as 90% beneficiary. The remaining 10% was in Sara’s name. Mr. Gifford did not obtain spousal consent when withdrawing the money or designating Emma as the IRA’s beneficiary. Sara filed a lawsuit claiming the 401(k) lump sum distribution was invalid. She argued that the Employee Retirement Income Security Act of 1974 (ERISA) required her to consent to the payout.

The court ruled against Sara. The rationale was that the consent rule applies if the 401(k) plan offers a lifetime annuity as an optional form of payment. Additionally, the account holder must select the lifetime annuity payment option. In this case, the Walmart plan did not offer a lifetime annuity option. Therefore, Mr. Gifford did not need Sara’s consent.

Is Spousal Consent Required for IRA Distribution?

Generally, a spouse does not need consent when taking an IRA distribution because IRAs are not subject to the spousal consent rules under ERISA and the Retirement Equity Act (REA). These laws apply to qualified retirement accounts, one major difference between IRAs and qualified plans.

If a married qualified plan account holder wants to take any distribution, they must have it paid as a qualified joint and survivor annuity (QJSA). If they wish to be paid in any other form, such as a lump sum distribution, their spouse must consent. QJSAs provide benefits to the surviving spouse following the account holder’s death. It’s important to note that this spousal consent requirement does not apply to many 401(k) plans.

Is Spousal Consent Required for IRA Beneficiary Designation?

Is Spousal Consent Required for IRA Beneficiary Designation?

Generally, you do not need spousal consent when changing your IRA’s beneficiary designation. However, you may require spousal consent if you live in a community property state. Community property rules vary from state to state but generally treat assets and debts acquired during the marriage as jointly owned. This includes funds in your IRA that accumulated since you married, assuming you lived in a community property state all those years.

If the IRA owner dies or divorces, the spouse could be entitled to a portion of the funds unless they waive that right. Since the nonparticipating spouse has an interest in the funds, the IRA owner must obtain spousal consent when designating a beneficiary other than the spouse. Naming someone in your will or trust as the beneficiary of your IRA funds generally does not change the rules — you still need spousal consent, subject to legal exceptions.

What States Require Spousal Consent for IRA Beneficiary Designation?

Generally, you need spousal consent for an IRA designation if you reside in one of the following community property states:

  1. Arizona
  2. California
  3. Louisiana
  4. Idaho
  5. New Mexico
  6. Nevada
  7. Texas
  8. Wisconsin
  9. Washington

You may still obtain spousal consent even if you do not reside in a community property state, but it is optional. This approach can be helpful if you have previously lived in a community property state or move to one in the future. Considering that the law may apply differently depending on the circumstances, it’s best to consult an attorney for tailored advice.

Is Spousal Consent Required for 401K Rollover to IRA?

Generally, you can rollover funds in a 401k to an IRA without spousal consent. The regular distribution rules apply in most instances. Married 401(k) account holders who do not want to leave their entire amount to their spouse can elect to receive a lump sum distribution once they become eligible. Then, they can roll those funds into an IRA and designate anyone they prefer as their beneficiary. In most cases, the 401(k) distribution and IRA beneficiary designation will not require spousal consent.

Frequently Asked Questions

Below are answers to some commonly asked questions:

What Is the Spousal Consent Requirement?

Most retirement accounts require spouses to obtain consent from the other when taking distributions or changing beneficiary designations. This requirement applies depending on the type of plan or the couple’s residence. For example, an IRA owner does not generally require spousal consent when making withdrawals. However, they may need spousal consent if they live in a community property state and want to elect or change beneficiary designations.

Does a Surviving Spouse Have Rights to an IRA?

A surviving spouse does not have automatic rights to a deceased spouse’s IRA funds unless they are named beneficiaries. If the account holder designates another person as the beneficiary, that person may claim the money. However, if the couple resides in a community property state, the surviving spouse may claim the IRA. According to the community property rules, couples own assets equally.

Do the Spousal Requirement Rules Apply to Unmarried Couples?

The spousal consent rules typically apply only to married couples — not domestic partnerships or similar relationships that state laws do not recognize as marriages. Unmarried couples do not enjoy the same benefits and protections as spouses. The rule applies to same- and opposite-sex couples.

Do You Need Further Advice? Contact Fort Pitt Capital Group

Fort Pitt Capital Group is a team of financial advisors with experience in financial planning, wealth management, and investment analysis. We have provided practical solutions to clients for almost 30 years. Our team dedicates time and attention to understanding each situation so we can offer tailored advice. Contact us now to learn more about IRAs, spousal consent requirements, and how we can help you manage your wealth.

Do You Need Further Advice? Contact Fort Pitt Capital Group

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