Can My Spouse Roll Her 401(k) Into My IRA?

When a spouse leaves a job, a common question is how to handle their 401(k) balance as part of a strategy to consolidate assets. The process involves navigating specific rules that govern how these tax-advantaged funds can be moved.

The Individual Rule for Retirement Accounts

The direct answer to whether a spouse can roll her 401(k) into your IRA is no. Federal law and IRS regulations strictly define retirement accounts as individual arrangements. The “I” in IRA stands for “Individual,” underscoring that the account is legally titled to and owned by one person. This principle of individual ownership applies equally to 401(k)s.

This structure means that funds from two separate individuals’ retirement plans cannot be combined into a single account while both account holders are alive. Attempting to move her 401(k) assets directly into your existing IRA would violate these fundamental ownership rules.

Permitted Rollover Destinations for a Spouse’s 401(k)

Since moving the money into your IRA is not an option, your spouse has four distinct alternatives for her 401(k) funds.

• Roll the balance into an IRA established in her own name. She can open a new Traditional IRA and use a direct, trustee-to-trustee transfer, which is the cleanest method to avoid tax consequences. An indirect rollover is possible, but requires depositing the full amount into the new IRA within 60 days to avoid taxes and penalties; the old plan is also required to withhold 20% for taxes from an indirect rollover check.
• Roll the funds into her new employer’s 401(k) plan, if she has a new job and the plan documents permit such transfers. This can be a good choice for individuals who prefer 401(k) features, such as loan provisions, or who wish to keep all their work-related retirement funds in one place. She would need to contact the new plan’s administrator to confirm they accept rollovers.
• Leave the funds in her former employer’s 401(k) plan. This option is available if her vested balance is more than $7,000. If the balance is below this amount, the plan sponsor has the right to force the money out into an IRA they establish for her. Leaving the money may be simple, but it can lead to higher administrative fees or more limited investment choices compared to an IRA.
• Cash out the account by taking a lump-sum distribution. This is often the least favorable choice due to its significant tax implications. The entire distribution would be taxed as ordinary income, and if your spouse is under age 59 ½, she would face an additional 10% early withdrawal penalty. This path is typically only considered when there is an immediate need for the funds.

The Exception for a Deceased Spouse

The rules change significantly upon the death of a spouse, creating the primary exception to the individual ownership principle. If you are the surviving spouse and named as the beneficiary of your deceased partner’s 401(k), you have the option to roll over the inherited assets directly into your own IRA. This transaction is referred to as a spousal rollover.

By executing a spousal rollover, you can treat the inherited funds as if they were always your own, consolidating the assets and designating your own beneficiaries. A major benefit is that you can delay taking required minimum distributions (RMDs) until you reach the age of 73. This special treatment is available only to surviving spouses.