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What is the tax rate for 401K distribution from an estate?


Hi -
Receiving a distribution from a relative's estate which was largely in a 401K.....will this distribution be taxed at a fixed rate or do we specify the rate.....or will it be taxed at our taxable income rate from our most recent tax return? We are in CA....will there be both Federal and State tax implications? MANY THANKS! Can't really ask the trustee as they charge (greatly) for their time!

538 day(s) ago

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mikebadj 		If the money went to the estate, the estate has to file it as income on the 1041. If the estate distributed the money to you, then they passed the income through to you on the 1041 k-1 and the income tax obligation also passed through. You would add the income to your income for the year and pay tax. It it's a lot of money it will bump you a tax bracket or two.

The estate tax rate is very quickly 35%.

And, gee, if you have a trustee that you are paying, why aren't you getting what you paid for???

Ask them if you are getting a k-1....

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TaxesandScotch 		Are you listed as beneficiaries? This would mean the 401k was not part of the estate. It would pass to those named as beneficiaries and the same rules would apply to you as to the original owner -- 10% penalty for early withdrawl and both stae and federal income taxes.

However, if the estate is the beneficiary. The estate would be paying the taxes and the heirs would just get the cash.

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crussmba 		I think that bdancer is wrong about the 10% penalty. I believe that distributions due to death are exempt from the penalty (but still subject to ordinary income tax). The rest of bdancers answer sounds right to me, but I have not checked.

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MelonsO 		You will be taxed at whatever your tax rate is at time of distribution. However if the estate was enough to owe estate tax, you might receive a K-1 and could deduct estate tax paid on that amount of the distribution.

Too bad you were not a named beneficiary on the 401(k) itself. Then it could have been directly transferred it to an IRA in the name of the deceased for your benefit as beneficiary and you would have owed no tax until distributed. Or if the deceased was a spouse it could have been transferred to your own IRA. Too late now.

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