Can a 401(k) Be Cashed Out With a Spouse's Permission?

A 401(k) is an employer-qualified profit-sharing plan that offers you tax-deferred savings and investments. You and your employer can make tax-deductible contributions to a 401(k). You don’t pay taxes on the money until you remove it from the plan, and you usually don't have to have your spouse's permission to cash it out. But you’ll have to jump through some other hoops before you can grab the money.

You normally can’t take your money out of a 401(k) without penalty unless you reach age 59 1/2 or leave your job. You can also withdraw money if you become disabled or if your employer terminates the plan without providing a replacement. Other permitted reasons are financial hardship and a reservist being called to active duty. If you cash out your 401(k) for a non-hardship reason and are under age 59 1/2, the Internal Revenue Service will charge a 10 percent penalty.

If you have a financial hardship, the IRS limits the money you can remove to your pretax contributions. You can’t withdraw earnings, but might be able to siphon off employer contributions. To qualify for a hardship distribution, you must show an immediate and heavy financial need that you have to satisfy right away.

The IRS names certain expenses that qualify for hardship distribution, including medical costs, purchase of your main home, educational expenses, money needed to prevent eviction, funeral expenses and repair costs stemming from damage to your main home. You also qualify for a hardship distribution if you need to fork over back taxes.

The topic of spousal permission arises because of 401(k) beneficiary rules. Under the Employee Retirement Income Security Act of 1974, or ERISA, your spouse is automatically named as sole beneficiary of your account. You can’t name a different or additional beneficiary unless your spouse approves it in writing. The IRS states that a 401(k) plan may require an employee’s spouse to consent to a distribution, depending on the type of distribution and the plan specifics.

You must include part or all of the money you take out of your 401(k) in your current taxable income. Tax is due on money stemming from pretax contributions, employer contributions and earnings. Your plan may also allow you to make after-tax contributions, which are not taxed when withdrawn. You can roll the money you withdraw into a traditional IRA to avoid current taxes. However, you can’t roll over money taken because of a hardship, a required distribution or an annuity payment.