Multiple types of 401(k) plans exist, each with its own set of rules regarding contributions and distributions. While all plans must follow established guidelines for federal tax purposes, many features are optional and at the discretion of the plan sponsor. Requiring an employee's spouse to sign a consent form before a loan is issued is one such provision.
401k Loan Basics
Most 401(k) plans contain provisions allowing participants to borrow a portion of the money accumulated within their account. IRS regulations restrict 401(k) loans to a maximum of half of the vested account balance or $50,000, whichever is less. According to the IRS website, "The loan must be repaid within five years, unless the loan is used to buy the participant’s main home." 401(k) loans do not result in additional taxable liability, and early withdrawal penalties are not imposed for these distributions.
A number of 401(k) plan providers require an employee's spouse to acknowledge their partner's request for a loan. Part of the loan application is a spousal waiver that must be signed and notarized before a loan request will be granted. Applications submitted by married employees that do not contain a properly executed spousal waiver are denied or delayed until a waiver is delivered.
Rationale for Requiring Spousal Consent
401(k) assets are often included in the equitable distribution of property in case of divorce. A state court can award all or part of a retirement fund to a spouse. Assets also can go to a spouse upon the death of the plan participant. Because a loan against a 401(k) therefore means a potential loss of funds in which the spouse has a financial stake, many providers require a spouse's signature before granting an employee's request for a 401(k) loan.
IRS Position on Spousal Waivers
The IRS has not established any provisions mandating a spouse's acknowledgement or permission for loans from an employee's 401(k). However, the general distribution rules described in the 401(k) Resource Guide for Plan Sponsors mentions that "the plan may also require the consent of the participant’s spouse before making a distribution." Each plan may contain different rules provided they adhere to existing legislation, and obtaining spousal consent for loans is an optional provision.
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