Can I Roll Over My 401(k) Into My Spouse's?

A 401(k) plan is a tax-advantaged retirement plan offered to employees by certain companies. There are many benefits to having a 401(k) account, but here are numerous restrictions as well. There are times you can roll over your 401(k) into another account, but you can usually only do this when the other account is in your own name. Only in two situations can your 401(k) money roll over to a name other than your own.

Taxation is the primary reason you can't roll over your 401(k) plan to your spouse. When you contribute to a 401(k), you're not taxed on the money you deposit. Only when you take a distribution do you pay taxes on your earnings and contributions. If you could roll over your account to another person, a participant in a high tax bracket could take a big tax deduction and then transfer the money to a person in a low tax bracket, thereby taking advantage of an unearned tax benefit. For example, if you were in the 30 percent tax bracket and contributed $10,000 to your 401(k), you'd earn a $3,000 tax deduction. If your spouse filed separately and was in the 10 percent bracket, she could take the money out and only pay $1,000 in taxes. Essentially, you'd net a $2,000 profit just by rolling the money over to your spouse, which would be an unfair abuse of the tax code.

When you open a 401(k) account, you get to designate who will receive your money when you die. As a result, you can set up your account to automatically roll over to your spouse in the event of your death. An interesting twist when it comes to the laws governing 401(k) plans is that your spouse will always be able to roll over your 401(k) into her account when you die, even if you designate someone else on your beneficiary form. You can only choose a non-spousal beneficiary for your 401(k) if you get a written disclaimer from your spouse while you're still alive.

Another way you can roll over your 401(k) to a different person is if you get divorced. In most cases, part of the divorce process will be a qualified domestic relations order, or QDRO, which specifies how retirement assets are to be divided. If the QDRO specifies that your 401(k) is to be split 50-50, by law you have to distribute half of your account to your former spouse. In that case, you can roll over that portion of your 401(k) to your former spouse's account.