Most of us do not daydream about rollover forms or spousal-benefit math. We care about paying the bills and keeping the car running. We also care about not getting clobbered by surprise taxes.
So if you are 65, thinking about taking your ex-husband’s Social Security instead of your own, and wondering whether to cash out a 401(k) or park it in an IRA CD, you are asking the right questions.
The good news is that the federal rulebook is public, and understanding a few key points can save you money. The challenge is that a small mistake can be costly, which is why many people get professional help before making these decisions.
Let’s walk through what the IRS and the Social Security Administration say, in plain English, and then outline simple next steps.
Can you cash out a 401(k) without paying taxes at 65, or is a rollover to an IRA CD smarter?
You can move a 401(k) to an IRA without triggering taxes if you do a proper rollover. The IRS calls this a rollover and gives you 60 days to get the money from one “retirement plan bubble” to the next if the check is made out to you, though a direct trustee-to-trustee transfer is the cleanest route.
If you miss the deadline or take the cash and keep it, that distribution is taxable income. It’s a simple but firm rule: miss the window, pay the tax.
The early-withdrawal penalty usually applies only before age 59½. At 65, that extra 10 percent penalty does not apply, but ordinary income tax still does if you simply cash out.
There are special exceptions to the penalty for people under 59½, and one of them is the 72(t) rule, which allows substantially equal periodic payments if you follow strict formulas for at least five years or until age 59½, whichever is longer. It is a niche tool with rigid rules. Not a casual workaround.
If you roll your 401(k) into a traditional IRA CD, interest earned inside the IRA grows tax-deferred. That means you pay tax later when you withdraw from a traditional IRA, not each year as the CD earns interest.
Rules differ for Roth IRAs, where qualified withdrawals are tax-free. A safety-first approach is perfectly fine, as long as you keep the money inside the IRA wrapper.
How the main options compare
The table below summarizes the basic tax treatment so you can see the trade-offs quickly. It does not replace advice tailored to your situation, but it covers the core IRS rules.
| Move you are considering | What it is in simple terms | Tax treatment if done correctly | When taxes or penalties kick in |
| Cash out the 401(k) at 65 | Take the money to your bank account | The distribution is taxable income | No 10% early penalty at 65, but income tax applies in the year of withdrawal |
| Direct rollover 401(k) → traditional IRA | Move funds plan-to-plan | Not taxable at rollover; funds stay tax-deferred | Taxes apply later when you take IRA withdrawals |
| Put funds in a traditional IRA CD | Keep money inside IRA, invested in a bank CD | Interest grows tax-deferred inside the IRA | Tax due when IRA distributions occur; different rules if it is a Roth IRA |
In short, a clean rollover preserves tax deferral. A cash-out gives you spending money now but creates a tax bill in the same year. If someone under 59½ must tap retirement funds, the penalty exceptions and 72(t) payments exist, but the rules are strict and technical. Plan it. Then act.
Will claiming an ex-spouse’s Social Security at 65 reduce the check, and by how much?
Social Security spousal benefits can be as high as 50 percent of your ex-spouse’s benefit at their full retirement age. If you claim before your own full retirement age, the spousal amount is reduced. File at 65 when your full retirement age is 67, and the check shrinks. You also never get both benefits; the SSA pays the higher of your own retirement benefit or your spousal amount. No double dipping.
For divorced-spouse benefits, the baseline requirements are specific: the marriage must have lasted at least 10 years, you must be 62 or older, and you must currently be unmarried. Your ex does not need to be single, and in many cases you can claim even if your ex has not filed, as long as certain timing rules are met. These are clear requirements to verify, making it worth your while to confirm your eligibility early.
A key wrinkle many people miss is the deemed filing rule. If you turned 62 on or after January 2, 2016, applying for one retirement benefit generally means you are treated as applying for both, and you receive the higher amount. In other words, you are not stacking checks or playing hopscotch between them later. Learn more about deemed filing. It prevents the old switch-and-delay strategy.
How do you apply or estimate the number?
You can estimate spousal benefits using SSA’s calculators and your online Social Security account. This helps you see the effect of claiming at different ages. Handy and free.
When you are within three months of the date you want benefits to start, you can apply online, by phone, or at a local office. For spousal or divorced-spouse benefits, SSA’s guidance and application checklist are a helpful prep step. A little prep saves a lot of back-and-forth.
Do you need a financial adviser for these decisions, and what might it cost?
Several planners told us that questions like these are exactly when professional guidance pays off. As one put it, “An adviser can help ensure you know about unintended consequences, like missing out not just on the lower Social Security amount but also on the inflation adjustment that goes along with it and what it looks like 20 years in the future,” said Mark Struthers, certified financial planner at Sona Wealth Advisors.
Another added a more down-to-earth example: “If my car is on the side of the road and the lights [are flashing], I’m calling AAA or a mechanic,” said Amir Noor, certified financial planner at United Financial Planning Group.
If you hire, the fee landscape varies. Hourly advisers often charge about 150 to 450 dollars per hour, asset-based pricing often runs near 1 percent of assets, and project-based work can range from 1,500 to 7,500 dollars, according to planners we interviewed. You are paying for fewer mistakes and better sequencing. That is the idea.
If you want a professional held to a fiduciary standard, the CFP Board requires CFP professionals to act in a client’s best interests when providing financial advice. You can search or verify CFP professionals through CFP Board’s website, and you can look up fee-only advisers through NAPFA’s directory. Check credentials. Then check fit.
What should you do next to keep taxes and penalties in check?
Before making any moves, a short checklist can help you avoid the usual potholes and the not-so-fun letters from tax authorities. It is quick. It works.
- Decide on the 401(k) path. If you want to preserve tax deferral, ask the plan to execute a direct rollover to a traditional IRA rather than sending you a check.
- If a check is issued to you, mark the 60-day window on your calendar and complete the rollover before the deadline. Late rollovers are generally taxable and may not be fixable.
- If you prefer lower risk, consider an IRA CD inside the IRA structure so earnings remain tax-deferred. Confirm whether you have a traditional or Roth IRA since withdrawal tax rules differ.
- Map your Social Security claiming age. If you are considering divorced-spouse benefits, confirm the 10-year marriage rule, your current marital status, and how early claiming will reduce the amount.
- Remember the deemed filing rule. If you were first eligible after the 2015 law change, expect to receive the higher of your own or the spousal amount, not both.
- If you are under 59½ and must tap retirement funds, read the IRS rules on penalty exceptions and 72(t) payments very carefully, or get help before you withdraw a dollar.
- If you want professional help, interview a few fiduciary planners. Use the CFP Board and NAPFA directories to compare fit, services, and fees.
Taxes and government forms can feel like a maze by design, but the rules are knowable. Take a breath. If you map the order of operations, you can keep more of your money and avoid clean-up work later.
