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Tax Treatment of 401(k) Beneficiary
Old 05-23-2008, 07:05 PM   #1
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Tax Treatment of 401(k) Beneficiary

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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Old 05-23-2008, 07:25 PM   #2
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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.

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Old 05-23-2008, 09:51 PM   #3
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Here's an interesting article: Stretching Benefits - Articles - Financial Planning

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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Old 05-24-2008, 02:14 AM   #4
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The law changed in 2007, so that inherited non-spouse 401(k)'s are treated like inherited non-spouse IRAs, so a so-called 'stretch IRA' is now possible.
New Rules for Inherited 401(k) Plans Easier on Non-Spouses

But see these glitches: What Is The IRS Thinking? -
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Old 05-24-2008, 09:04 AM   #5
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Thanks ... too bad there is no step up in basis for 401k's ...
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