My husband recentlt died and I am the beneficiary of his 401k. What are the tax consequences?

Question

The 401k plan is taking out 20% for federal taxes and 4.5% for VA stat taxes. If I roll this over into my IRA, what happens to these taxes I will have paid?

Answer 1

Go to www.themoneyalert.com.  There is a section there that explains inherited 401(k)s.

Answer 2

First of all, I'm sorry to hear of your loss.

If you roll the 401k over to an IRA, you will pay no taxes until you take the money out. Also, it has to be an inherited IRA to get out of the 10% early withdrawal penalty. You can set one of these up yourself. Basically, it's an IRA that is classified as a "beneficiary" IRA.

ALSO, you should have the option to not have any taxes withheld if you withdraw it from the 401k since you are a spousal beneficiary.

Answer 3

Have them stop the distribution until you are sure you are doing what you want.

If you cash out the 401k plan, you will pay income tax (no penalty) on the entire distribution.  You will show the entire distribution on your tax return.  The withholding will be shown as a payment on your tax return.  You may owe additional money, or you may get a refund.

If you roll the 401k into an IRA, have the 401k plan move the money and not distribute it to you.  This is a nontaxable event.  You will pay no tax now.  You will pay tax only when you take a distribution from the IRA.

You can do some of each, take some money now and pay taxes, and have the rest moved into an IRA.

The important thing to remember is not to take the money until you want to pay taxes on it.

Answer 4

Any withdrawal from 401K is taxable income.

Read about IRA http://taxipay.blogspot.com/2008/05/trad...

Answer 5

If you roll over the entire amount, adding enough to make up for what was deducted for taxes, then you wouldn't owe tax on it until later when you withdrew money, and the tax withheld would be refunded when you file your tax return for the year.

A better way is to do a direct rollover, having the trustee send it directly to the trustee of your IRA - then they won't withhold anything.

Answer 6

You don't have to withdraw the amount.  You can roll it over into an IRA account without paying taxes or penalties.  If you are above 59 1/2 years old, then you may be required to take out some money every year, but you are not required to fully cash it out.

Answer 7

Roll it over into your Traditional IRA so there are not tax consequences.

Answer 8

The taxes go to the government.  They are paying out the plan to you and they are simply taking out the income taxes o the distribution

Answer 9

If you have the trustee for your IRA contact the trustee for the 401(k) you will have no problems and not tax obligation until you start drawing the money out.  

Do not, repeat, do not touch the money yourself.