If you’re 65 and thinking about cashing out a 401(k) or claiming your ex-spouse’s Social Security instead of your own, you’re asking the right questions. Retirement decisions can be full of confusing fine print, but knowing just a few key rules can help you avoid costly mistakes and keep more of your money in the long run.
Let’s break down what the rules really say, without the jargon—and look at what steps to take next.
Table of Contents
Cashout
Can you cash out your 401(k) at 65 without getting hit by a big tax bill? Technically yes—but only if you understand how the system works.
At age 65, you’re no longer subject to the 10 percent early withdrawal penalty that applies to people under 59½. However, cashing out still means ordinary income tax on the full amount you withdraw that year. That could mean a surprise tax bill in April if you’re not prepared.
The smarter move? Consider a direct rollover to a traditional IRA. If your 401(k) plan sends the money straight to the IRA provider (trustee-to-trustee transfer), there are no taxes at the time of transfer. The funds remain tax-deferred, and you only pay taxes later when you take distributions.
If the 401(k) cuts you a check instead, you still have 60 days to deposit it into an IRA and avoid taxes—but miss that window, and it becomes taxable income.
If you’re the conservative type, rolling your money into an IRA CD is an option. This lets your money earn interest inside the IRA, still tax-deferred, and without the risks of the stock market.
Table
Here’s a quick comparison of your main options:
| Move You’re Considering | What It Means Simply | Tax Treatment if Done Right | When Taxes or Penalties Apply |
|---|---|---|---|
| Cash out the 401(k) at 65 | Move funds to your bank account | Distribution is taxable income | No 10% penalty, but taxed in year of withdrawal |
| Direct rollover 401(k) → IRA | Transfer money directly between accounts | No tax at rollover; funds stay tax-deferred | Taxes apply when you withdraw from the IRA |
| IRA CD (inside traditional IRA) | Invest IRA funds in a certificate of deposit | Interest grows tax-deferred | Tax owed on future IRA withdrawals |
Benefits
Thinking of claiming your ex-spouse’s Social Security at 65? It’s possible—but there are a few strings attached.
If you were married for at least 10 years, are currently unmarried, and are 62 or older, you could qualify for divorced-spouse benefits, worth up to 50 percent of your ex’s full benefit amount. But here’s the catch: if you claim before your own full retirement age (67 if born in 1960 or later), that amount is reduced.
Also, you don’t get both your own benefit and the spousal benefit. SSA pays whichever is higher, not both. This is due to the deemed filing rule, which says that if you turned 62 on or after January 2, 2016, filing for one type of retirement benefit counts as filing for all. So, no switching strategies later.
Another bonus? Your ex doesn’t have to know or give permission—and you can still qualify even if they haven’t claimed their benefits yet, as long as you’re both at least 62 and divorced for two years.
Estimates
Want to estimate what you’ll get? SSA’s online calculators can help. You’ll need to set up a My Social Security account, and from there you can see how much you’d receive based on different filing ages and whether your own or your ex’s record provides the higher amount.
When you’re ready to apply, you can do it online, by phone, or in person. SSA has checklists for divorced-spouse applications to help you prepare.
Advice
So, should you hire a financial adviser? For questions like these, it can be worth it.
Advisers can help you avoid big mistakes—like triggering a tax bill you didn’t expect, or claiming benefits too early and locking in a lower check for life. Several certified financial planners recommend getting help, especially if you’re dealing with both 401(k) rollovers and Social Security timing at once.
If you go this route, here’s what to expect:
| Fee Model | Typical Cost Range |
|---|---|
| Hourly | $150 – $450 per hour |
| Project-based | $1,500 – $7,500 per project |
| Asset-based | Around 1% of assets managed |
To find a reputable adviser, search directories from CFP Board or NAPFA, and always confirm that the planner is a fiduciary, meaning they are required to act in your best interest.
Checklist
To keep things clean and tax-efficient, follow this simple checklist:
- Decide how you want to handle your 401(k). A direct rollover to a traditional IRA keeps taxes at bay.
- If you receive a check, mark the 60-day deadline to complete the rollover and avoid taxes.
- Want safety and stable returns? Use a CD inside the IRA, not outside it.
- Look up your Social Security eligibility for ex-spouse benefits. Remember the 10-year marriage rule and that your ex doesn’t need to file.
- If you were born after 1954, expect deemed filing to apply. You’ll get one benefit, whichever is higher.
- Under 59½ and thinking about cashing out? Know the 72(t) rules or expect penalties.
- Need help? Interview a few fiduciary financial planners. Use CFP Board or NAPFA to compare.
Retirement planning doesn’t have to be overwhelming. A little knowledge and the right order of steps can keep your taxes low, protect your income, and let you retire with more confidence. Whether it’s rolling over a 401(k) or figuring out spousal benefits, a thoughtful plan today saves a headache tomorrow.
FAQs
Can I cash out a 401(k) at 65 tax-free?
No, you’ll still owe income tax, but not the 10% penalty.
Is a rollover to an IRA taxed?
No, not if done correctly via a direct transfer.
Can I claim my ex’s Social Security at 65?
Yes, if married 10+ years and currently unmarried.
Do I get both my own and ex’s benefit?
No, SSA pays the higher of the two—never both.
Is hiring a financial adviser worth it?
Yes, especially to avoid tax and benefit mistakes.
