How is someone taxed if they inherit a 401(k) account as a beneficiary, following the death of the 401(k) participant? Note this would be a non-spouse, significant other beneciary. Any planning suggestions? [I'll also be consulting a tax CPA / attorney, but was curious about knowledge here.]
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Depends on payout options which can be found in SPD, and the amount of dollars which can be a combo of pre & post tax monies. Perhaps NUA also applies depending on what the original owner had. Post tax monies will be taxed at regular tax rates.
Ideally the plan would allow the beneficiary to transfer to an inherited IRA so that
the IRA could be "stretched" over his/her life expectancy so that it would not all be taxable at once. However as pointed out by CC, the plan may or may not allow such
a transfer. Note also that the article points out that a rollover is not allowed---only
a direct transfer is allowed for the stretch to work.
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