How to Know if your Partner is Spending Money From the Retirement Account

Like love, money means different things to different people. In any serious relationship where two people work, spend and live together, differing financial habits can become a source of conflict. The problem is made even more complex when mistrust and secrecy come into play. Thus if you suspect that your partner is making unscheduled expenses, like spending money from the retirement account, here are a few things you can do.

Be informed

Financial cheating may take several forms, ranging from mild ones like digging into a common stash at the bottom of the cookie jar without your knowledge to serious ones ‘borrowing’ a couple of thousand dollars from a joint account and conveniently forgetting to tell you. Likewise fingering a retirement account without a prior discussion is an important matter and should raise a red flag in your relationship. However before you confront your partner directly, arm yourself with the right information. A retirement account especially 401 k is a special type of account funded through pre-tax payroll deduction. 401(k) plans are part of a family of retirement plans known as defined contribution plans called so because the amount that is contributed is defined either by the participant or his/her employer. The plan gets its name from its section number and paragraph in the internal revenue code - section 401, paragraph (k).  

If a person withdraws money from such an account before he/she is 59.5 years old, he/she will have to pay the tax on it as well as a 10% penalty fine to the IRS. These penalties along with state taxes amount to a substantial amout – in fact it is even possible for an account holder to lose almost 50 percent of his distribution to taxes under these rules, depending on the type of plan, the reason for withdrawal and the owner's residency. However before you accuse your partner of messing up your retirement fund, it is also a good idea to be informed about the exceptions to the 10% penalty which apart from the employee's death could range from the employee's total and permanent disability, separation from service in or after the year the employee reached age 55, substantially equal periodic payments under section 72(t), a qualified domestic relations order to deductible medical expenses (exceeding the 7.5% floor). If your partner meets none of the above exceptions and has been withdrawing money from the retirement account, it may be time to bring things into the clear.

What does it mean to the two of you

Before you begin your investigation into your partner’s surreptitious financial actions, consider what money in general and the retirement account in particular means to you both, individually and as a couple. It may seem obvious that the whole point of having a retirement account is to have enough money in the sunset years. However money itself means different things to different people; while to one partner the retirement account fund may be a way to achieve financial security, to another it may be a way of finally affording to live out long cherished dreams like going on a long vacation or buying an expensive yacht. Once you are clear in your mind as to the meaning of a retirement fund, both to you and your partner, it will be easier to have a broader outlook and see things from his/her perspective, an essential skill in any successful relationship.

Ask directly

Sometimes the best way to find out something is also the simplest. So if you have genuine reasons to suspect your partner of withdrawing money from the retirement account, simply ask him/her. If he/she tells the truth, you have nothing else to do. However it is also likely that your partner will get defensive and refuse to divulge details about his/her financial actions. Here you need to highlight the fact that tracking your spending habits is neither a way to point fingers at one another as to who is spending what nor about having someone looking over your shoulder every time you buy something. Instead tracking your spending is critical to being financially secure. Unless you know where your money is going, it is impossible to set financial goals individually as well as a couple.

Watch out for other signs

If outright questioning has not got you anywhere, you can look out for some common clues of financial cheating. If your partner makes an unusually expensive purchase and you are reasonably sure that it has not been funded from a normal savings account or a personal loan, chances are that your partner has dipped into retirement account. Other signs could include finding bills for items you didn't know about,  discovering new lines of credit open in your partner’s or even your name or generally when your partner is resistant to a conversation about finances or becomes argumentative or angry when you discuss finances.

Also since retirement accounts have strict withdrawal rules, you can look for relevant documents among your partner’s papers or directly enquire at his/her workplace. Since retirement plans are closely related to employed status, it is unlikely that an employer has absolutely no knowledge about your partner applying for withdrawal from a retirement fun.

Consider other options

If your partner has withdrawn money from a retirement fund to meet an emergency or an unforeseen expense, ask him/her to explore other options. Many retirement plans allow employees to take loans from their 401(k) account to be repaid with after-tax funds at pre-defined interest rates. In such circumstances it is best to consult a financial planner who will be able to point out the pros and cons of each option.

What could be the reasons

The chief reasons people lie about money to their partners are pragmatism, control, guilt and fear. The pragmatic lie may result from one partner planning an eventual divorce or separation and not wanting the other to know how much money is available. Consider if such a reason is applicable in your case. Apart from this your partner may have secretly touched the retirement plan as a way of feeling in control; this impulse leads to revenge spending, as one partner overspends to prove their independence or to get back at the other for something lacking in the relationship. While these two causes imply significant lack of trust in a relationship, he/she may also have simply made some irresponsible purchases and then had no other option but to dip into retirement fund while feeling guilty and embarrassed about it so as to attempt to cover it up.

Whatever the reason, such unplanned actions can play havoc with financial goals of a couple. Apart from wrecking certain plans for the future, it may also drive partners apart and ruin the relationship. Thus if this action of your partner forms part of a larger pattern, you may need to ask some hard questions about mutual goals and priorities in your relationship.